Bank Credit Standards, Demand, Pro-cyclicality and the Business Cycle: A Comment
Á. Maddaloni, J. L. Peydró Alcalde, J. Suárez, Reint E. Gropp
Moneda y crédito,
No. 230,
2010
Abstract
We analyze the determinants fo standards and demand for loans to firms and house-holds over the last business cycle using the comprehensive and confidential Bank Lending Survery from the Euro area. There is significant variation of standards and demand over the cycle. Standards for business loans vary more during the business cycle than the lending standards for households, whereas credit demand from households varies more than demand from firms. Lending standards vary mainly due to charges in perception of borrower risk, bank balance sheet positions and competitive pressures. In particular, we find that higher GDP growth softens lending standards for all loans, i. e. lending standards are pro-cyclical. However, we also find pro-cyclicality in credit demand.
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Stages of the 2007/2008 Global Financial Crisis: Is there a Wandering Asset Price Bubble?
Lucjan T. Orlowski
Economics E-Journal 43. Munich Personal RePEc Archive 2008,
2009
Abstract
This study identifies five distinctive stages of the current global financial crisis: the meltdown of the subprime mortgage market; spillovers into broader credit market; the liquidity crisis epitomized by the fallout of Northern Rock, Bear Stearns and Lehman Brothers with counterparty risk effects on other financial institutions; the commodity price bubble, and the ultimate demise of investment banking in the U.S. The study argues that the severity of the crisis is influenced strongly by changeable allocations of global savings coupled with excessive credit creation, which lead to over-pricing of varied types of assets. The study calls such process a “wandering asset-price bubble“. Unstable allocations elevate market, credit, and liquidity risks. Monetary policy responses aimed at stabilizing financial markets are proposed.
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Estimation Uncertainty in Credit Risk Assessment: Comparison of Credit Risk Using Bootstrapping and an Asymptotic Approach
Henry Dannenberg
IWH Discussion Papers,
No. 3,
2009
Abstract
Bei der Kreditrisikobewertung müssen die Parameter Ausfallwahrscheinlichkeit und
-korrelation geschätzt werden. Diese Schätzung erfolgt unter Unsicherheit. In der Literatur werden asymptotische Konfidenzregionen diskutiert, um diese Unsicherheit bei der simultanen Schätzung beider Parameter zu bewerten. Diese Regionen setzen allerdings eine sehr lange Datenhistorie für eine genaue Bewertung voraus. Als Alternative bietet sich bei kurzen Datenhistorien Bootstrapping an. Diese Methode ist allerdings deutlich rechenintensiver. Im vorliegenden Beitrag wird untersucht, ab welcher Anzahl historisch verfügbarer Perioden Bootstrapping und eine Wald-Konfidenzregion zu einer vergleichbaren Bewertung des Kreditrisikos gelangen. Die hier genutzten Methoden führen zu ähnlichen Ergebnissen, wenn über 100 historische Perioden zur Verfügung stehen.
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Stages of the Ongoing Global Financial Crisis: Is There a Wandering Asset Bubble?
Lucjan T. Orlowski
IWH Discussion Papers,
No. 11,
2008
Abstract
This study argues that the severity of the current global financial crisis is strongly influenced by changeable allocations of the global savings. This process is named a “wandering asset bubble”. Since its original outbreak induced by the demise of the subprime mortgage market and the mortgage-backed securities in the U.S., this crisis has reverberated across other credit areas, structured financial products and global financial institutions. Four distinctive stages of the crisis are identified: the meltdown of the subprime mortgage market, spillovers into broader credit market, the liquidity crisis epitomized by the fallout of Bear Sterns with some contagion effects on other financial institutions, and the commodity price bubble. Monetary policy responses aimed at stabilizing financial markets are proposed.
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The Role of Credit Ratings in Banking Regulations. Credit Ratings Are Insufficiently Anticipating the Risk for Currency Crises.
Tobias Knedlik, Johannes Ströbel
Wirtschaft im Wandel,
No. 10,
2007
Abstract
Bonitätsbewertungen durch Rating-Agenturen gewinnen durch die unter dem Stichwort Basel II diskutierten Reformvorschläge zur Bankenregulierung an Bedeutung. Insbesondere hängt das durch die Regulierung geforderte Mindesteigenkapital unter dem standardisierten Ansatz von Basel II von der Bewertung der Kreditrisiken durch externe Rating-Agenturen ab. Bonitätsbewertungen, speziell von souveränen Schuldnern, bestimmen damit wesentlich die Höhe des Mindesteigenkapitals von Banken. In der Vergangenheit haben Rating-Agenturen Währungskrisenrisiken systematisch unterschätzt. Diese sind jedoch für die Bewertung des Kreditausfallrisikos souveräner Schuldner wichtig. Die prozyklischen Effekte von Basel II entstehen vor allem dadurch, daß im Fall von Währungskrisen aufgrund der zu positiven Bewertung im Vorfeld der Krise schlagartig massive Herabstufungen notwendig werden. Diese Effekte können nur minimiert werden, wenn die währungskriseninduzierten Kreditausfallrisiken angemessen berücksichtigt werden. Die Kritik an der Methode der Rating-Agenturen, insbesondere an mangelnder Berücksichtigung neuerer Währungskrisenmodelle infolge der Asienkrisen von 1997/98, führte zu Reaktionen der Agenturen. So sagte z. B. Standard and Poor’s die Berücksichtigung mikroökonomischer Indikatoren zu, die bei aktuellen Krisen als Krisenfaktoren erkannt wurden. In der vorliegenden Arbeit wird anhand eines Beispiels untersucht, inwiefern sich empirische Anzeichen dafür erkennen lassen, daß mikroökonomische Indikatoren in der Praxis der Bonitätsprüfung beachtet werden. Das Ergebnis der empirischen Untersuchungen zeigt, daß traditionelle makroökonomische Indikatoren die Rating-Ergebnisse dominieren. In aktuellen Ratings können keine Anzeichen für eine stärkere Berücksichtigung von Mikro-Indikatoren gefunden werden. Es muß daher geschlußfolgert werden, daß, wie in der Wirtschaft im Wandel 8/2007 ausgeführt, auch weiterhin prozyklische, krisenverstärkende Effekte von Basel II ausgehen. Die Rating-Agenturen erfüllen bislang die Rolle als frühzeitige Antizipatoren für Währungskrisenrisiken unzureichend.
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The Effect of the Iraq War on Foreign Bank Lending to the MENA Region
H. Evren Damar
Emerging Markets Finance and Trade,
No. 5,
2007
Abstract
This paper examines whether a large geopolitical event, such as the war in Iraq, can affect foreign bank lending from developed countries to emerging markets. Using country-level data, the paper analyzes the effects of economic shocks and the Iraq war on the availability of foreign bank credit to five countries in the Middle East and North Africa. The war has had a nonuniform effect on foreign banks: Although the war has led to higher U.S. lending, it has also discouraged British and Italian banks from lending to the region. Implications concerning the stability and reliability of foreign bank credit in the face of increased geopolitical risks are identified and discussed.
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Bank Lending, Bank Capital Regulation and Efficiency of Corporate Foreign Investment
Diemo Dietrich, Achim Hauck
IWH Discussion Papers,
No. 4,
2007
Abstract
In this paper we study interdependencies between corporate foreign investment and the capital structure of banks. By committing to invest predominantly at home, firms can reduce the credit default risk of their lending banks. Therefore, banks can refinance loans to a larger extent through deposits thereby reducing firms’ effective financing costs. Firms thus have an incentive to allocate resources inefficiently as they then save on financing costs. We argue that imposing minimum capital adequacy for banks can eliminate this incentive by putting a lower bound on financing costs. However, the Basel II framework is shown to miss this potential.
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Why do we have an interbank money market?
Jürgen Wiemers, Ulrike Neyer
IWH Discussion Papers,
No. 182,
2003
Abstract
The interbank money market plays a key role in the execution of monetary policy. Hence, it is important to know the functioning of this market and the determinants of the interbank money market rate. In this paper, we develop an interbank money market model with a heterogeneous banking sector. We show that besides for balancing daily liquidity fluctuations banks participate in the interbank market because they have different marginal costs of obtaining funds from the central bank. In the euro area, which we refer to, these cost differences occur because banks have different marginal cost of collateral which they need to hold to obtain funds from the central bank. Banks with relatively low marginal costs act as intermediaries between the central bank and banks with relatively high marginal costs. The necessary positive spread between the interbank market rate and the central bank rate is determined by transaction costs and credit risk in the interbank market, total liquidity needs of the banking sector, costs of obtaining funds from the central bank, and the distribution of the latter across banks.
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Rating Agency Actions and the Pricing of Debt and Equity of European Banks: What Can we Infer About Private Sector Monitoring of Bank Soundness?
Reint E. Gropp, A. J. Richards
Economic Notes,
No. 3,
2001
Abstract
The recent consultative papers by the Basel Committee on Banking Supervision has raised the possibility of an explicit role for external rating agencies in the assessment of the credit risk of banks’ assets, including interbank claims. Any judgement on the merits of this proposal calls for an assessment of the information contained in credit ratings and its relationship to other publicly available information on the financial health of banks and borrowers. We assess this issue via an event study of rating change announcements by leading international rating agencies, focusing on rating changes for European banks for which data on bond and equity prices are available. We find little evidence of announcement effects on bond prices, which may reflect the lack of liquidity in bond markets in Europe during much of our sample period. For equity prices, we find strong effects of ratings changes, although some of our results may suffer from contamination by contemporaneous news events. We also test for pre-announcement and post-announcement effects, but find little evidence of either. Overall, our results suggest that ratings agencies may perform a useful role in summarizing and obtaining non-public information on banks and that monitoring of banks’ risk through bond holders appears to be relatively limited in Europe. The relatively weak monitoring by bondholders casts some doubt on the effectiveness of a subordinated debt requirement as a supervisory tool in the European context, at least until bond markets are more developed.
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Personal Bankruptcy and Credit Supply and Demand
Reint E. Gropp, J. K. Scholz, M. J. White
Quarterly Journal of Economics,
No. 1,
1997
Abstract
This paper examines how personal bankruptcy and bankruptcy exemptions affect the supply and demand for credit. While generous state-level bankruptcy exemptions are probably viewed by most policy-makers as benefiting less-well-off borrowers, our results using data from the 1983 Survey of Consumer Finances suggest that they increase the amount of credit held by high-asset households and reduce the availability and amount of credit to low-asset households, conditioning on observable characteristics. Thus, bankruptcy exemptions redistribute credit toward borrowers with high assets. Interest rates on automobile loans for low-asset households also appear to be higher in high exemption states.
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