J. C. R. Dow and I. D. Saville
- Published in print:
- 1990
- Published Online:
- November 2003
- ISBN:
- 9780198283195
- eISBN:
- 9780191596186
- Item type:
- chapter
- Publisher:
- Oxford University Press
- DOI:
- 10.1093/0198283199.003.0002
- Subject:
- Economics and Finance, Macro- and Monetary Economics
The focus is on the banking system and how it is likely to operate if it is able to function without state interference. It presents a discussion as to how an economy with rising money incomes leads ...
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The focus is on the banking system and how it is likely to operate if it is able to function without state interference. It presents a discussion as to how an economy with rising money incomes leads to a growth in the stock of money (an analysis important for later discussions of monetary control). It focuses on the flows of money from lenders to borrowers and analyses the differences between public‐ and private‐sector borrowing on potential bank growth. There is also a brief analysis on the relationships of banks to money markets.Less
The focus is on the banking system and how it is likely to operate if it is able to function without state interference. It presents a discussion as to how an economy with rising money incomes leads to a growth in the stock of money (an analysis important for later discussions of monetary control). It focuses on the flows of money from lenders to borrowers and analyses the differences between public‐ and private‐sector borrowing on potential bank growth. There is also a brief analysis on the relationships of banks to money markets.
Stephany Griffith‐Jones and Avinash Persaud
- Published in print:
- 2008
- Published Online:
- May 2008
- ISBN:
- 9780199230587
- eISBN:
- 9780191710896
- Item type:
- chapter
- Publisher:
- Oxford University Press
- DOI:
- 10.1093/acprof:oso/9780199230587.003.0010
- Subject:
- Economics and Finance, Development, Growth, and Environmental
This chapter stresses the importance of banking regulations — and of a well functioning banking system — for economic growth. It examines both positive and problematic features of Basel II, the new ...
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This chapter stresses the importance of banking regulations — and of a well functioning banking system — for economic growth. It examines both positive and problematic features of Basel II, the new international banking regulation. The concerns include the overestimation of risk of international bank lending to developing countries, as clear benefits of international diversification are not included. This creates a risk that international bank lending to developing countries could be sharply reduced and remaining lending could see its cost increased. The second concern is that it would accentuate the pro-cyclicality of bank lending, damaging all economies, but especially the more fragile developing ones. The chapter concludes with concrete policy proposals which could avoid these negative effects, such as introducing diversification benefits into Basle II and encouraging forward-looking provisioning to counter-act pro-cyclical effects.Less
This chapter stresses the importance of banking regulations — and of a well functioning banking system — for economic growth. It examines both positive and problematic features of Basel II, the new international banking regulation. The concerns include the overestimation of risk of international bank lending to developing countries, as clear benefits of international diversification are not included. This creates a risk that international bank lending to developing countries could be sharply reduced and remaining lending could see its cost increased. The second concern is that it would accentuate the pro-cyclicality of bank lending, damaging all economies, but especially the more fragile developing ones. The chapter concludes with concrete policy proposals which could avoid these negative effects, such as introducing diversification benefits into Basle II and encouraging forward-looking provisioning to counter-act pro-cyclical effects.
Andreas Worms
- Published in print:
- 2004
- Published Online:
- January 2005
- ISBN:
- 9780199253166
- eISBN:
- 9780191601651
- Item type:
- chapter
- Publisher:
- Oxford University Press
- DOI:
- 10.1093/0199253161.003.0006
- Subject:
- Economics and Finance, Financial Economics
After presenting evidence on the overall effects of monetary policy on output and inflation in Germany, this chapter discusses different monetary transmission channels. It concentrates specifically ...
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After presenting evidence on the overall effects of monetary policy on output and inflation in Germany, this chapter discusses different monetary transmission channels. It concentrates specifically on the ‘credit channel’, i.e. on the role of financial factors for monetary transmission, and stresses that the institutional structure of the German banking system is crucial for understanding the reaction of bank lending to monetary policy: Contrary to many other countries, small banks in Germany do not reduce lending more strongly than large banks in response to a restrictive monetary policy because they usually belong to a banking network (the savings banks’ sector or the cooperative sector) with close inter-bank links to large head institutions. This observation is in line with the notion that these small German banks, in particular, often serve as ‘house-banks’ to their customers and that an implicit insurance against restrictive monetary policy shocks may be part of such a close lending relationship.Less
After presenting evidence on the overall effects of monetary policy on output and inflation in Germany, this chapter discusses different monetary transmission channels. It concentrates specifically on the ‘credit channel’, i.e. on the role of financial factors for monetary transmission, and stresses that the institutional structure of the German banking system is crucial for understanding the reaction of bank lending to monetary policy: Contrary to many other countries, small banks in Germany do not reduce lending more strongly than large banks in response to a restrictive monetary policy because they usually belong to a banking network (the savings banks’ sector or the cooperative sector) with close inter-bank links to large head institutions. This observation is in line with the notion that these small German banks, in particular, often serve as ‘house-banks’ to their customers and that an implicit insurance against restrictive monetary policy shocks may be part of such a close lending relationship.
Roy C. Smith and Ingo Walter
- Published in print:
- 2003
- Published Online:
- November 2003
- ISBN:
- 9780195134360
- eISBN:
- 9780199833009
- Item type:
- chapter
- Publisher:
- Oxford University Press
- DOI:
- 10.1093/0195134362.003.0005
- Subject:
- Economics and Finance, Financial Economics, International
Examines the general practice of bank lending to companies, governments, and other types of borrowers, and the risks and attractions of raising money from this source. Explains the loan syndication ...
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Examines the general practice of bank lending to companies, governments, and other types of borrowers, and the risks and attractions of raising money from this source. Explains the loan syndication mechanism of global commercial lending.Less
Examines the general practice of bank lending to companies, governments, and other types of borrowers, and the risks and attractions of raising money from this source. Explains the loan syndication mechanism of global commercial lending.
Brunella Bruno, Alexandra D'Onofrio, and Immacolata Marino
- Published in print:
- 2018
- Published Online:
- January 2018
- ISBN:
- 9780198815815
- eISBN:
- 9780191853418
- Item type:
- chapter
- Publisher:
- Oxford University Press
- DOI:
- 10.1093/oso/9780198815815.003.0006
- Subject:
- Economics and Finance, Financial Economics
We provide a comprehensive analysis of the main drivers of bank lending in Europe and the United States over the period from 2008 to 2014. We relate bank characteristics prior to the global financial ...
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We provide a comprehensive analysis of the main drivers of bank lending in Europe and the United States over the period from 2008 to 2014. We relate bank characteristics prior to the global financial crisis to their lending behaviour during and after the crisis period. Our analysis confirms the existence of a bank lending channel, that seems stronger in Europe than in the United States, especially if we look at corporate loans rather than at the whole loan portfolio. We uncover that the main bank characteristics affecting lending are size, capitalization, liquidity, and ownership structure, as well as, to a lesser extent, reliance on deposits and exposure to government bonds. Some of these factors have indeed shielded bank lending as predicted, but the results are not always in the expected direction, which points to the existence of a revised version of the traditional bank lending channel.Less
We provide a comprehensive analysis of the main drivers of bank lending in Europe and the United States over the period from 2008 to 2014. We relate bank characteristics prior to the global financial crisis to their lending behaviour during and after the crisis period. Our analysis confirms the existence of a bank lending channel, that seems stronger in Europe than in the United States, especially if we look at corporate loans rather than at the whole loan portfolio. We uncover that the main bank characteristics affecting lending are size, capitalization, liquidity, and ownership structure, as well as, to a lesser extent, reliance on deposits and exposure to government bonds. Some of these factors have indeed shielded bank lending as predicted, but the results are not always in the expected direction, which points to the existence of a revised version of the traditional bank lending channel.
Michael Brei and Alfredo Schclarek
- Published in print:
- 2018
- Published Online:
- November 2018
- ISBN:
- 9780198827948
- eISBN:
- 9780191866630
- Item type:
- chapter
- Publisher:
- Oxford University Press
- DOI:
- 10.1093/oso/9780198827948.003.0011
- Subject:
- Economics and Finance, Financial Economics, Development, Growth, and Environmental
This chapter investigates the cyclical lending patterns of national development banks (NDBs), comparing their lending activity with that of public, foreign, and domestic private banks over the period ...
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This chapter investigates the cyclical lending patterns of national development banks (NDBs), comparing their lending activity with that of public, foreign, and domestic private banks over the period of 1995–2014. It finds robust evidence that national development and public retail-oriented banks have counteracted the slowdown in the lending activity of private banks during crises by significantly increasing their provision of loans. This is particularly important when considering productive lending to the corporate sector. NDBs’ size, governance structure, and financial conditions are crucial in ensuring that the countercyclical response is effective in mitigating the macroeconomic effects of financial turmoil. In addition, it is important that special and innovative credit lines are designed in line with the specific needs of companies in times of crisis.Less
This chapter investigates the cyclical lending patterns of national development banks (NDBs), comparing their lending activity with that of public, foreign, and domestic private banks over the period of 1995–2014. It finds robust evidence that national development and public retail-oriented banks have counteracted the slowdown in the lending activity of private banks during crises by significantly increasing their provision of loans. This is particularly important when considering productive lending to the corporate sector. NDBs’ size, governance structure, and financial conditions are crucial in ensuring that the countercyclical response is effective in mitigating the macroeconomic effects of financial turmoil. In addition, it is important that special and innovative credit lines are designed in line with the specific needs of companies in times of crisis.
Robert Dekle and Kenneth Kletzer (eds)
- Published in print:
- 2002
- Published Online:
- February 2013
- ISBN:
- 9780226184944
- eISBN:
- 9780226185057
- Item type:
- chapter
- Publisher:
- University of Chicago Press
- DOI:
- 10.7208/chicago/9780226185057.003.0012
- Subject:
- Economics and Finance, International
This chapter covers the banking relationships that have been shown in the Asian financial system. It concentrates on the link between foreign capital inflows, economic growth, and subsequent banking ...
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This chapter covers the banking relationships that have been shown in the Asian financial system. It concentrates on the link between foreign capital inflows, economic growth, and subsequent banking crises under a fixed exchange rate. Malaysian, Taiwanese, and Singaporean firms were not dependent on domestic banks, because they actively tapped bond and equity markets. The theoretical model demonstrates that banking and currency crises coincide and inevitably occur in the absence of effective prudential regulation. After a financial crisis, the model shows that output contracts and that the growth rate of output is lower in recovery than it was before the crisis. Korea and Thailand had the strongest link between capital flows and lending, whereas capital controls broke the strong connection in Malaysia in 1994. The link between foreign capital inflows and bank lending fits Malaysia except under the imposition of capital controls; this supports the model's implications.Less
This chapter covers the banking relationships that have been shown in the Asian financial system. It concentrates on the link between foreign capital inflows, economic growth, and subsequent banking crises under a fixed exchange rate. Malaysian, Taiwanese, and Singaporean firms were not dependent on domestic banks, because they actively tapped bond and equity markets. The theoretical model demonstrates that banking and currency crises coincide and inevitably occur in the absence of effective prudential regulation. After a financial crisis, the model shows that output contracts and that the growth rate of output is lower in recovery than it was before the crisis. Korea and Thailand had the strongest link between capital flows and lending, whereas capital controls broke the strong connection in Malaysia in 1994. The link between foreign capital inflows and bank lending fits Malaysia except under the imposition of capital controls; this supports the model's implications.
Allen N. Berger, Margaret K. Kyle, and Joseph M. Scalise
- Published in print:
- 2002
- Published Online:
- February 2013
- ISBN:
- 9780226531885
- eISBN:
- 9780226531939
- Item type:
- chapter
- Publisher:
- University of Chicago Press
- DOI:
- 10.7208/chicago/9780226531939.003.0009
- Subject:
- Economics and Finance, Financial Economics
This chapter discusses some reasons to suspect that supervisory changes over the last decade or so may have had significant effects on the overall lending of the U.S. banking industry. It ...
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This chapter discusses some reasons to suspect that supervisory changes over the last decade or so may have had significant effects on the overall lending of the U.S. banking industry. It investigates this possibility by testing three hypotheses about whether supervisors changed their policies and whether these policy changes affected bank lending behavior: Hypothesis 1: U.S. bank supervisors got tougher on banks during the credit crunch period of 1989–92, treating banks of a given financial condition more harshly than in previous years. Hypothesis 2: U.S. bank supervisors got easier on banks during the boom period of 1993–98, treating banks of a given financial condition less harshly than in prior periods. Hypothesis 3: Changes in supervisory toughness, if they did occur, changed bank lending behavior in the predicted directions. These hypotheses are tested using information on the supervisory process, confidential data on classified assets and CAMEL ratings from bank examinations, bank balance sheet and income data, and other variables for the condition of the bank, its state, and its region over the period 1986–98. A commentary and discussion summary are also included at the end of the chapter.Less
This chapter discusses some reasons to suspect that supervisory changes over the last decade or so may have had significant effects on the overall lending of the U.S. banking industry. It investigates this possibility by testing three hypotheses about whether supervisors changed their policies and whether these policy changes affected bank lending behavior: Hypothesis 1: U.S. bank supervisors got tougher on banks during the credit crunch period of 1989–92, treating banks of a given financial condition more harshly than in previous years. Hypothesis 2: U.S. bank supervisors got easier on banks during the boom period of 1993–98, treating banks of a given financial condition less harshly than in prior periods. Hypothesis 3: Changes in supervisory toughness, if they did occur, changed bank lending behavior in the predicted directions. These hypotheses are tested using information on the supervisory process, confidential data on classified assets and CAMEL ratings from bank examinations, bank balance sheet and income data, and other variables for the condition of the bank, its state, and its region over the period 1986–98. A commentary and discussion summary are also included at the end of the chapter.
Mohd Afandi Abu Bakar, Radiah Abdul Kader, and Roza Hazli Zakaria
- Published in print:
- 2013
- Published Online:
- May 2014
- ISBN:
- 9780748647613
- eISBN:
- 9780748695133
- Item type:
- chapter
- Publisher:
- Edinburgh University Press
- DOI:
- 10.3366/edinburgh/9780748647613.003.0005
- Subject:
- Religion, Islam
This chapter examines the cyclical behaviour of financing activities by Islamic banks as well as the cyclicality behaviour of fixed-rate financing. More specifically, it investigates the impact of ...
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This chapter examines the cyclical behaviour of financing activities by Islamic banks as well as the cyclicality behaviour of fixed-rate financing. More specifically, it investigates the impact of aggregate economic activity fluctuations on Islamic bank lending. Analysis of panel data for the period 1998–2008 for twenty-four Islamic banks shows that strong GDP growth accelerates financing growth, a trend that is also observed in conventional banks. Financing is positively correlated with bank reserves, capital and loan loss provision, but weakly related to money supply. The chapter suggests that financing may be less pro-cyclical if Islamic banks would rely more on profit and risk sharing.Less
This chapter examines the cyclical behaviour of financing activities by Islamic banks as well as the cyclicality behaviour of fixed-rate financing. More specifically, it investigates the impact of aggregate economic activity fluctuations on Islamic bank lending. Analysis of panel data for the period 1998–2008 for twenty-four Islamic banks shows that strong GDP growth accelerates financing growth, a trend that is also observed in conventional banks. Financing is positively correlated with bank reserves, capital and loan loss provision, but weakly related to money supply. The chapter suggests that financing may be less pro-cyclical if Islamic banks would rely more on profit and risk sharing.
Linda S. Goldberg (ed.)
- Published in print:
- 2002
- Published Online:
- February 2013
- ISBN:
- 9780226184944
- eISBN:
- 9780226185057
- Item type:
- chapter
- Publisher:
- University of Chicago Press
- DOI:
- 10.7208/chicago/9780226185057.003.0005
- Subject:
- Economics and Finance, International
This chapter employs new data to examine U.S. banks' lending practices toward emerging nations. It specifically explores the extent to which U.S. banks that lend to the emerging markets respond to ...
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This chapter employs new data to examine U.S. banks' lending practices toward emerging nations. It specifically explores the extent to which U.S. banks that lend to the emerging markets respond to changing macroeconomic conditions, both in the United States and in the borrowing countries. Although it is shown that significant differences exist across banks and over time in the size and composition of U.S. bank foreign claims, it did not address the reasons for and timing of changes in these claims. Additionally, the U.S. banks may add to more stable overall credit supplies in emerging markets. There is little evidence of systematic differences in the behavior of U.S. bank claims across periods associated with international financial crises. Furthermore, it is suggested that U.S. banks are not volatile lenders, but it would be helpful to look at this issue in more detail.Less
This chapter employs new data to examine U.S. banks' lending practices toward emerging nations. It specifically explores the extent to which U.S. banks that lend to the emerging markets respond to changing macroeconomic conditions, both in the United States and in the borrowing countries. Although it is shown that significant differences exist across banks and over time in the size and composition of U.S. bank foreign claims, it did not address the reasons for and timing of changes in these claims. Additionally, the U.S. banks may add to more stable overall credit supplies in emerging markets. There is little evidence of systematic differences in the behavior of U.S. bank claims across periods associated with international financial crises. Furthermore, it is suggested that U.S. banks are not volatile lenders, but it would be helpful to look at this issue in more detail.
Roy C. Smith and Ingo Walter
- Published in print:
- 2003
- Published Online:
- November 2003
- ISBN:
- 9780195134360
- eISBN:
- 9780199833009
- Item type:
- chapter
- Publisher:
- Oxford University Press
- DOI:
- 10.1093/0195134362.003.0006
- Subject:
- Economics and Finance, Financial Economics, International
An important subclass of bank lending, designed to reduce lenders’ risk exposure, concerns the various types of lending that are geared to the value of assets underlying trade financing, ...
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An important subclass of bank lending, designed to reduce lenders’ risk exposure, concerns the various types of lending that are geared to the value of assets underlying trade financing, international leasing, and project financing. Explains the characteristics of these types.Less
An important subclass of bank lending, designed to reduce lenders’ risk exposure, concerns the various types of lending that are geared to the value of assets underlying trade financing, international leasing, and project financing. Explains the characteristics of these types.
Ying Xu and Hai Anh La
- Published in print:
- 2019
- Published Online:
- August 2019
- ISBN:
- 9780198838104
- eISBN:
- 9780191874628
- Item type:
- chapter
- Publisher:
- Oxford University Press
- DOI:
- 10.1093/oso/9780198838104.003.0006
- Subject:
- Economics and Finance, Financial Economics, South and East Asia
This chapter assesses the spillover effects of the United States’ unconventional monetary policy on the Asian credit market. With a focus on cross-border bank lending, it employs firm-level loan data ...
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This chapter assesses the spillover effects of the United States’ unconventional monetary policy on the Asian credit market. With a focus on cross-border bank lending, it employs firm-level loan data with regard to the syndicated loan market and measures the international bank lending channel through changes in United States dollar-denominated loans extended to Asian borrowers. It finds that the growth of dollar credit in Asia increased substantially in response to quantitative easing in the US financial market. The results of this study confirm the existence of the bank lending channel in Asia and emphasize the role of credit flows in transmitting financial conditions. The chapter also provides new evidence of cross-border liquidity spillover in the syndicated loan market. It finds that the overall spillover effect was large but differed significantly in Asia by types of borrowing firms, financing purposes, and loan terms at different stages of the quantitative easing programmes.Less
This chapter assesses the spillover effects of the United States’ unconventional monetary policy on the Asian credit market. With a focus on cross-border bank lending, it employs firm-level loan data with regard to the syndicated loan market and measures the international bank lending channel through changes in United States dollar-denominated loans extended to Asian borrowers. It finds that the growth of dollar credit in Asia increased substantially in response to quantitative easing in the US financial market. The results of this study confirm the existence of the bank lending channel in Asia and emphasize the role of credit flows in transmitting financial conditions. The chapter also provides new evidence of cross-border liquidity spillover in the syndicated loan market. It finds that the overall spillover effect was large but differed significantly in Asia by types of borrowing firms, financing purposes, and loan terms at different stages of the quantitative easing programmes.
Jack Favilukis, David Kohn, Sydney C. Ludvigson, and Stijn Van Nieuwerburgh
- Published in print:
- 2013
- Published Online:
- January 2014
- ISBN:
- 9780226030586
- eISBN:
- 9780226030616
- Item type:
- chapter
- Publisher:
- University of Chicago Press
- DOI:
- 10.7208/chicago/9780226030616.003.0007
- Subject:
- Economics and Finance, Financial Economics
This chapter examines the empirical relationship between house price changes and international capital flows, focusing on the boom-bust period in the housing market from 2000 to 2010. Foreign capital ...
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This chapter examines the empirical relationship between house price changes and international capital flows, focusing on the boom-bust period in the housing market from 2000 to 2010. Foreign capital flows into safe US securities—US Treasury and Agency bonds—played a key role in understanding the low interest rates in the last decade and quantitatively account for all of the upward trend in the US net foreign liability position over this period. It is argued that easy credit caused the run-up in housing prices.Less
This chapter examines the empirical relationship between house price changes and international capital flows, focusing on the boom-bust period in the housing market from 2000 to 2010. Foreign capital flows into safe US securities—US Treasury and Agency bonds—played a key role in understanding the low interest rates in the last decade and quantitatively account for all of the upward trend in the US net foreign liability position over this period. It is argued that easy credit caused the run-up in housing prices.
Claus D. Zimmerman
- Published in print:
- 2013
- Published Online:
- January 2014
- ISBN:
- 9780199680740
- eISBN:
- 9780191760686
- Item type:
- chapter
- Publisher:
- Oxford University Press
- DOI:
- 10.1093/acprof:oso/9780199680740.003.0003
- Subject:
- Law, Public International Law, Company and Commercial Law
This chapter analyses the ongoing hybridization of contemporary international monetary law which covers a very broad phenomenon resulting from constant changes in the formal and material sources of ...
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This chapter analyses the ongoing hybridization of contemporary international monetary law which covers a very broad phenomenon resulting from constant changes in the formal and material sources of this body of law, from the increasing unsuitability of the rigid categories of ‘hard’ and ‘soft’ law for appropriately characterizing all recent normative evolutions in this important sub-discipline of international economic law as well as from the rise in importance of transnational monetary law. After an examination of the diversification of the legal regime for international current and capital transactions across the three traditional pillars of international economic law, this chapter examines the evolving normative effects of the conditionality of IMF and World Bank lending and the impact of the IMF’s surveillance and technical assistance activities. Finally, this chapter looks into relevant aspects of the rise in importance of transnational monetary law and its implications.Less
This chapter analyses the ongoing hybridization of contemporary international monetary law which covers a very broad phenomenon resulting from constant changes in the formal and material sources of this body of law, from the increasing unsuitability of the rigid categories of ‘hard’ and ‘soft’ law for appropriately characterizing all recent normative evolutions in this important sub-discipline of international economic law as well as from the rise in importance of transnational monetary law. After an examination of the diversification of the legal regime for international current and capital transactions across the three traditional pillars of international economic law, this chapter examines the evolving normative effects of the conditionality of IMF and World Bank lending and the impact of the IMF’s surveillance and technical assistance activities. Finally, this chapter looks into relevant aspects of the rise in importance of transnational monetary law and its implications.
Bassett William F., Gilchrist Simon, Weinbach Gretchen C., and Zakrajšek Egon
- Published in print:
- 2014
- Published Online:
- January 2015
- ISBN:
- 9780226077734
- eISBN:
- 9780226092645
- Item type:
- chapter
- Publisher:
- University of Chicago Press
- DOI:
- 10.7208/chicago/9780226092645.003.0011
- Subject:
- Economics and Finance, Financial Economics
In this chapter, we highlight some of the difficulties that arise in measuring accurately the provision of credit by the banking sector during an economic downturn, such as the one experienced during ...
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In this chapter, we highlight some of the difficulties that arise in measuring accurately the provision of credit by the banking sector during an economic downturn, such as the one experienced during the recent financial crisis. Specifically, we argue that existing bank regulatory reports provide insufficient detail to monitor banks' lending activities accurately. We then outline a conceptual framework for measuring bank lending that could be used to improve the existing information on banks' on-balance-sheet lending activities and the equally-important information on banks' offbalance-sheet credit line provision activities. We recognize that the literal adoption of our framework would increase banks' reporting burden. Our aim, rather, is to provide a detailed description of the kind of data that would significantly inform the analysis of credit flows and greatly enhance our ability to assess the availability of bank-intermediated credit.Less
In this chapter, we highlight some of the difficulties that arise in measuring accurately the provision of credit by the banking sector during an economic downturn, such as the one experienced during the recent financial crisis. Specifically, we argue that existing bank regulatory reports provide insufficient detail to monitor banks' lending activities accurately. We then outline a conceptual framework for measuring bank lending that could be used to improve the existing information on banks' on-balance-sheet lending activities and the equally-important information on banks' offbalance-sheet credit line provision activities. We recognize that the literal adoption of our framework would increase banks' reporting burden. Our aim, rather, is to provide a detailed description of the kind of data that would significantly inform the analysis of credit flows and greatly enhance our ability to assess the availability of bank-intermediated credit.
Shin-ichi Fukuda
- Published in print:
- 2001
- Published Online:
- February 2013
- ISBN:
- 9780226386768
- eISBN:
- 9780226387017
- Item type:
- chapter
- Publisher:
- University of Chicago Press
- DOI:
- 10.7208/chicago/9780226387017.003.0005
- Subject:
- Economics and Finance, International
This chapter examines the behavior and role of banks and bank lending in the crisis. It develops a model of asymmetric information, in which borrowers know whether they are creditworthy but lenders ...
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This chapter examines the behavior and role of banks and bank lending in the crisis. It develops a model of asymmetric information, in which borrowers know whether they are creditworthy but lenders cannot distinguish between them until there is some difference in their behavior. The chapter is organized as follows. Section 4.2 shows that middle-term and long-term commercial bank loans are less mobile forms of capital flows. It also shows that a large fraction of external bank debt had been financed by short-term loans not only in the East Asian countries but also in a large number of other countries. Section 4.3 focuses on the role of monitoring in explaining these findings. Section 4.4 explains the basic structure of the theoretical model, and Section 4.5 defines long-term and short-term debt contracts. Section 4.6 investigates the maturity choices by all borrowers and shows that the vulnerable financial structures in developing countries might emerge as a result of efficient monitoring activities by banks. Sections 4.7 and 4.8 discuss how the main results will change when one of the key assumptions in the model is altered. Section 4.9 summarizes the results and their policy implications. Two commentaries are included at the end of the chapter.Less
This chapter examines the behavior and role of banks and bank lending in the crisis. It develops a model of asymmetric information, in which borrowers know whether they are creditworthy but lenders cannot distinguish between them until there is some difference in their behavior. The chapter is organized as follows. Section 4.2 shows that middle-term and long-term commercial bank loans are less mobile forms of capital flows. It also shows that a large fraction of external bank debt had been financed by short-term loans not only in the East Asian countries but also in a large number of other countries. Section 4.3 focuses on the role of monitoring in explaining these findings. Section 4.4 explains the basic structure of the theoretical model, and Section 4.5 defines long-term and short-term debt contracts. Section 4.6 investigates the maturity choices by all borrowers and shows that the vulnerable financial structures in developing countries might emerge as a result of efficient monitoring activities by banks. Sections 4.7 and 4.8 discuss how the main results will change when one of the key assumptions in the model is altered. Section 4.9 summarizes the results and their policy implications. Two commentaries are included at the end of the chapter.
Gianni De Nicolò and Marcella Lucchetta
- Published in print:
- 2013
- Published Online:
- September 2013
- ISBN:
- 9780226319285
- eISBN:
- 9780226921969
- Item type:
- chapter
- Publisher:
- University of Chicago Press
- DOI:
- 10.7208/chicago/9780226921969.003.0005
- Subject:
- Economics and Finance, Econometrics
This chapter presents a modeling framework that forecasts both indicators of systemic real risk and systemic financial risk, as well as stress tests of these indicators as impulse responses to ...
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This chapter presents a modeling framework that forecasts both indicators of systemic real risk and systemic financial risk, as well as stress tests of these indicators as impulse responses to structurally identifiable shocks. The framework is implemented using a set of quarterly time series of financial and real activity for the G-7 economies for the 1980Q1 to 2009Q3 period. Two main results are obtained. First, there is evidence of out-of-sample forecasting power of the model for tail risk realizations of real activity for several countries, which suggests the usefulness of the model as a risk monitoring tool. Second, in all countries, aggregate demand shocks are the main drivers of the real cycle, while bank credit demand shocks are the main drivers of the bank lending cycle—a result consistent with the hypothesis that shocks to the real economy are the main drivers of both real and financial risks. A commentary is also included at the end of the chapter.Less
This chapter presents a modeling framework that forecasts both indicators of systemic real risk and systemic financial risk, as well as stress tests of these indicators as impulse responses to structurally identifiable shocks. The framework is implemented using a set of quarterly time series of financial and real activity for the G-7 economies for the 1980Q1 to 2009Q3 period. Two main results are obtained. First, there is evidence of out-of-sample forecasting power of the model for tail risk realizations of real activity for several countries, which suggests the usefulness of the model as a risk monitoring tool. Second, in all countries, aggregate demand shocks are the main drivers of the real cycle, while bank credit demand shocks are the main drivers of the bank lending cycle—a result consistent with the hypothesis that shocks to the real economy are the main drivers of both real and financial risks. A commentary is also included at the end of the chapter.
Loriana Pelizzon and Stephen Schaefer
- Published in print:
- 2007
- Published Online:
- February 2013
- ISBN:
- 9780226092850
- eISBN:
- 9780226092980
- Item type:
- chapter
- Publisher:
- University of Chicago Press
- DOI:
- 10.7208/chicago/9780226092980.003.0009
- Subject:
- Economics and Finance, Financial Economics
This chapter explores the consequences of adding Pillar 2 alongside Pillar 1 in terms of bank risk taking and the scale of bank lending. It also concentrates on the interaction between Pillar 1 and ...
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This chapter explores the consequences of adding Pillar 2 alongside Pillar 1 in terms of bank risk taking and the scale of bank lending. It also concentrates on the interaction between Pillar 1 and Pillar 2 when banks are able to use risk management to cheat in relation to capital requirements. The disciplinary effect of the franchise value vanishes when closure rules allow costless recapitalization. The presence of costs of recapitalization decreases the cost of deposit insurance but increases the probability of default. Without Pillar 2/Prompt Corrective Action (PCA), even when banks' compliance is relatively good (limited cheating), risk-based capital regulation (RBCR) may be effective in the sense that, for higher levels of RBCR, banks do indeed hold higher amounts of capital. Pillar 2/PCA is most effective in decreasing the cost of deposit insurance when compliance is relatively poor.Less
This chapter explores the consequences of adding Pillar 2 alongside Pillar 1 in terms of bank risk taking and the scale of bank lending. It also concentrates on the interaction between Pillar 1 and Pillar 2 when banks are able to use risk management to cheat in relation to capital requirements. The disciplinary effect of the franchise value vanishes when closure rules allow costless recapitalization. The presence of costs of recapitalization decreases the cost of deposit insurance but increases the probability of default. Without Pillar 2/Prompt Corrective Action (PCA), even when banks' compliance is relatively good (limited cheating), risk-based capital regulation (RBCR) may be effective in the sense that, for higher levels of RBCR, banks do indeed hold higher amounts of capital. Pillar 2/PCA is most effective in decreasing the cost of deposit insurance when compliance is relatively poor.
Claire Célérier, Thomas Kick, and Steven Ongena
- Published in print:
- 2018
- Published Online:
- January 2018
- ISBN:
- 9780198815815
- eISBN:
- 9780191853418
- Item type:
- chapter
- Publisher:
- Oxford University Press
- DOI:
- 10.1093/oso/9780198815815.003.0010
- Subject:
- Economics and Finance, Financial Economics
We explore the effect of tax reforms that decrease the cost of equity on bank lending. In 2000 and 2006, Italy and Belgium, respectively, introduced an allowance for corporate equity so that both ...
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We explore the effect of tax reforms that decrease the cost of equity on bank lending. In 2000 and 2006, Italy and Belgium, respectively, introduced an allowance for corporate equity so that both firms and banks could deduct a notional interest on their equity from their taxable income. Because local firms were also affected by these reforms, we employ loan-level data from a credit register in a third country—Germany—to better identify the differential impact on lending by banks that were ‘treated’ by these tax reforms versus a control group of banks that were not. We find that the decrease in the cost of equity leads banks to raise their equity ratio, and to concurrently expand their balance sheet by increasing the amount of credit supplied in Germany. Conversely, the reversal of these reforms leads to a decrease in lending.Less
We explore the effect of tax reforms that decrease the cost of equity on bank lending. In 2000 and 2006, Italy and Belgium, respectively, introduced an allowance for corporate equity so that both firms and banks could deduct a notional interest on their equity from their taxable income. Because local firms were also affected by these reforms, we employ loan-level data from a credit register in a third country—Germany—to better identify the differential impact on lending by banks that were ‘treated’ by these tax reforms versus a control group of banks that were not. We find that the decrease in the cost of equity leads banks to raise their equity ratio, and to concurrently expand their balance sheet by increasing the amount of credit supplied in Germany. Conversely, the reversal of these reforms leads to a decrease in lending.
José Luis Peydró, Andrea Polo, and Enrico Sette
- Published in print:
- 2018
- Published Online:
- January 2018
- ISBN:
- 9780198815815
- eISBN:
- 9780191853418
- Item type:
- chapter
- Publisher:
- Oxford University Press
- DOI:
- 10.1093/oso/9780198815815.003.0022
- Subject:
- Economics and Finance, Financial Economics
Since the beginning of the financial crisis, academics and regulators on both sides of the Atlantic have started to debate the implications of securities trading by banks. New regulation limits ...
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Since the beginning of the financial crisis, academics and regulators on both sides of the Atlantic have started to debate the implications of securities trading by banks. New regulation limits security trading, fearing that this could crowd out lending to the real economy or could facilitate risk-shifting by financial institutions. On the other hand, banks may use security trading for hedging purposes or, particularly during a crisis, to access public liquidity. Only very recently have researchers begun to have access to micro data at the security level on banks’ trading activities, and they are starting to bring robust evidence on these issues. This chapter reviews the potential costs and benefits of combining traditional intermediation activity with security trading and discusses the recent empirical evidence.Less
Since the beginning of the financial crisis, academics and regulators on both sides of the Atlantic have started to debate the implications of securities trading by banks. New regulation limits security trading, fearing that this could crowd out lending to the real economy or could facilitate risk-shifting by financial institutions. On the other hand, banks may use security trading for hedging purposes or, particularly during a crisis, to access public liquidity. Only very recently have researchers begun to have access to micro data at the security level on banks’ trading activities, and they are starting to bring robust evidence on these issues. This chapter reviews the potential costs and benefits of combining traditional intermediation activity with security trading and discusses the recent empirical evidence.
