Foreign Funding Shocks and the Lending Channel: Do Foreign Banks Adjust Differently?
Felix Noth, Matias Ossandon Busch
Finance Research Letters,
November
2016
Abstract
We document for a set of Latin American emerging countries that the different nature of foreign funding accessed by foreign and local banks affected their lending performance after September 2008. We show that lending growth was weaker for shock-affected foreign banks compared to shock-affected local banks. This evidence represents valuable policy information for regulators concerned with the stability and well-functioning of banking sectors.
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Bank Recapitalization, Regulatory Intervention, and Repayment
Thomas Kick, Michael Koetter, Tigran Poghosyan
Journal of Money, Credit and Banking,
No. 7,
2016
Abstract
We use prudential supervisory data for all German banks during 1994–2010 to test if regulatory interventions affect the likelihood that bailed-out banks repay capital support. Accounting for the selection bias inherent in nonrandom bank bailouts by insurance schemes and the endogenous administration of regulatory interventions, we show that regulators can increase the likelihood of repayment substantially. An increase in intervention frequencies by one standard deviation increases the annual probability of capital support repayment by 7%. Sturdy interventions, like restructuring orders, are effective, whereas weak measures reduce repayment probabilities. Intervention effects last up to 5 years.
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International Banking and Cross-border Effects of Regulation: Lessons from Germany
Jana Ohls, Markus Pramor, Lena Tonzer
Abstract
We analyze the inward and outward transmission of regulatory changes through German banks’ (international) loan portfolio. Overall, our results provide evidence for international spillovers of prudential instruments, these spillovers are however quite heterogeneous between types of banks and can only be observed for some instruments. For instance, foreign banks located in Germany reduce their loan growth to the German economy in response to a tightening of sector-specific capital buffers, local reserve requirements and loan to value ratios in their home country. Furthermore, from the point of view of foreign countries, tightening reserve requirements was effective in reducing lending inflows from German banks. Finally, we find that business and financial cycles matter for lending decisions.
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Legal Insider Trading and Stock Market Liquidity
Hans Degryse, Frank de Jong, Jérémie Lefebvre
De Economist,
No. 1,
2016
Abstract
This paper assesses the impact of legal trades by corporate insiders on the liquidity of the firm’s stock. For this purpose, we analyze two liquidity measures and one information asymmetry measure. The analysis allows us to study as well the effect of a change in insider trading regulation, namely the implementation of the Market Abuse Directive (European Union Directive 2003/6/EC) on the Dutch stock market. The first set of results shows that, in accordance with theories of asymmetric information, the intensity of legal insider trading in a given company is positively related to the bid-ask spread and to the information asymmetry measure. We also find that the Market Abuse Directive did not reduce significantly this effect. Secondly, analyzing liquidity and information asymmetry around the days of legal insider trading, we find that small and large capitalization stocks see their bid-ask spread and the permanent price impact increase when insiders trade. For mid-cap stocks, only the permanent price impact increases. Finally, we could not detect a significant improvement of these results following the change in regulation.
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Regulations, institutions and income smoothing by managing technical reserves: international evidence from the insurance industry
Chrysovalantis Gaganis, Iftekhar Hasan, Fotios Pasiouras
Omega,
No. 3,
2016
Abstract
This paper investigates the role of technical reserves in the income smoothing behavior of insurance companies. This is one of the first attempts in the literature to trace such relationship in the insurance industry, especially at a multi-country setting. The experience of 770 insurance firms operating in 87 countries over the period 2000–2009 reveals that there is a significant evidence of income smoothing. The paper also finds that institutional characteristics, e.g., the rule of law, common law legal origin, economic freedom, and regulations relating to technical provisions and supervisory power constrain income smoothing but other factors such as capital requirements, tax deductibility of provisions, auditing, and corporate governance do not have a significant effect.
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How Effective is Macroprudential Policy during Financial Downturns? Evidence from Caps on Banks' Leverage
Manuel Buchholz
Working Papers of Eesti Pank,
No. 7,
2015
Abstract
This paper investigates the effect of a macroprudential policy instrument, caps on banks' leverage, on domestic credit to the private sector since the Global Financial Crisis. Applying a difference-in-differences approach to a panel of 69 advanced and emerging economies over 2002–2014, we show that real credit grew after the crisis at considerably higher rates in countries which had implemented the leverage cap prior to the crisis. This stabilising effect is more pronounced for countries in which banks had a higher pre-crisis capital ratio, which suggests that after the crisis, banks were able to draw on buffers built up prior to the crisis due to the regulation. The results are robust to different choices of subsamples as well as to competing explanations such as standard adjustment to the pre-crisis credit boom.
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A Review of Empirical Research on the Design and Impact of Regulation in the Banking Sector
Sanja Jakovljević, Hans Degryse, Steven Ongena
Annual Review of Financial Economics,
2015
Abstract
We review existing empirical research on the design and impact of regulation in the banking sector. The impact of each individual piece of regulation may inexorably depend on the set of regulations already in place, the characteristics of the banks involved (from their size or ownership structure to operational idiosyncrasies in terms of capitalization levels or risk-taking behavior), and the institutional development of the country where the regulation is introduced. This complexity is challenging for the econometrician, who relies either on single-country data to identify challenges for regulation or on cross-country data to assess the overall effects of regulation. It is also troubling for the policy maker, who has to optimally design regulation to avoid any unintended consequences, especially those that vary over the credit cycle such as the currently developing macroprudential frameworks.
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03.12.2015 • 44/2015
Migration Affects Labour Market in Eastern Germany
Migration increasingly affects the labour market in Eastern Germany, having effects on employment and unemployment figures as well as the number of recipients of social assistance benefits under the SGB II regulations. Particularly with countries in Middle and Eastern Europe, countries affected by the European debt and confidence crisis and with people seeking asylum, there are large increases meeting the dimensions in Western Germany. However, migrants overall still form a significantly smaller percentage of the population and other labour market parameters in Eastern Germany, since migration was a lot stronger in Western Germany during the last decades. While on the short run negative effects on unemployment have to be expected, there are also chances, in the medium- and long-term, to soften the expectable demographic problems, if integration and qualification are supported.
Oliver Holtemöller
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1st IWH-FIN-FIRE Workshop on Challenges to Financial Stability
Annika Bacher, Lena Tonzer
Wirtschaft im Wandel,
No. 5,
2015
Abstract
Im Rahmen des Workshops tauschten sich internationale Teilnehmerinnen und Teilnehmer über aktuelle Forschungspapiere rund um das Thema „Challenges to Financial Stability“ aus. Im Wesentlichen diente der Workshop als Plattform, um Änderungen in den regulatorischen Rahmenbedingungen des Finanzsektors und die daraus resultierenden Einflüsse auf die Finanzstabilität bzw. die Konsequenzen für die Realwirtschaft zu diskutieren.
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Consequences of China’s Opening to Foreign Banks
Ran Li, Xiang Li, Wen Lei, Yiping Huang
L. Song, R. Garnaut, C. Fang, L. Johnston (Hrsg.), China's Domestic Transformation in a Global Context. Acton: ANU Press,
forthcoming
Abstract
China’s government has recently implemented additional reforms to relax the regulatory environment for foreign banks. Specifically, State Council Order No. 657, signed by Premier Li Keqiang, announced a decision to revise the Regulations of the People’s Republic of China on the Administration of Foreign-Funded Banks, effective from 1 January 2015. Implications of the revised regulations include removal of the requirement that a minimum of RMB100 million operating capital be transferred unconditionally from the overseas parent bank to the newly opened Chinese branch. In addition, in terms of the conditions attached to the right to carry out RMB-denominated activity, foreign banks are now eligible to apply to undertake local currency business after operating in China for one year—down from the previous three years. The requirement for two consecutive years of profit will be scrapped as well.
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