Banks Fearing the Drought? Liquidity Hoarding as a Response to Idiosyncratic Interbank Funding Dry-ups
Helge Littke, Matias Ossandon Busch
IWH Discussion Papers,
No. 12,
2018
Abstract
Since the global financial crisis, economic literature has highlighted banks’ inclination to bolster up their liquid asset positions once the aggregate interbank funding market experiences a dry-up. To this regard, we show that liquidity hoarding and its detrimental effects on credit can also be triggered by idiosyncratic, i.e. bankspecific, interbank funding shocks with implications for monetary policy. Combining a unique data set of the Brazilian banking sector with a novel identification strategy enables us to overcome previous limitations for studying this phenomenon as a bankspecific event. This strategy further helps us to analyse how disruptions in the bank headquarters’ interbank market can lead to liquidity and lending adjustments at the regional bank branch level. From the perspective of the policy maker, understanding this market-to-market spillover effect is important as local bank branch markets are characterised by market concentration and relationship lending.
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Big Fish in Small Banking Ponds? Cost Advantages and Foreign Affiliate Presences
Michael Koetter, Rients Galema
Journal of International Money and Finance,
2018
Abstract
We distinguish cost advantage at home from cost advantage vis-à-vis incumbent banks in destination markets to explain the probability of foreign bank affiliate lending. We combine detailed affiliate lending data of all German banks with public bank micro data from 59 destination markets. The likelihood to operate foreign affiliates depends positively on both types of cost advantage. Only cost advantage at home is economically significant. Generally, risk, return, and unobservable bank traits explain a larger share of the variation in foreign affiliate operations. Less profitable, more risky, and larger banks are more likely to operate affiliates abroad.
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Does It Pay to Get Connected? An Examination of Bank Alliance Network and Bond Spread
Iftekhar Hasan, Céline Meslier, Amine Tarazi, Mingming Zhou
Journal of Economics and Business,
forthcoming
Abstract
This paper examines the effects of bank alliance network on bonds issued by European banks during the period 1990–2009. We construct six measures capturing different dimensions of banks’ network characteristics. In opposition to the results obtained for non-financial firms, our findings indicate that being part of a network does not create value for bank’s bondholders, indicating a dark side effect of strategic alliances in the banking sector. While being part of a network is perceived as a risk-increasing event by market participants, this negative perception is significantly lower for the larger banks, and, to a lesser extent, for the more profitable banks. Moreover, during crisis times, the positive impact on bond spread of a bank’s higher centrality or of a bank’s higher connectedness in the network is stronger, indicating that market participants may fear spillover effects within the network during periods of banks’ heightened financial fragility.
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How Do Political Factors Shape the Bank Risk-Sovereign Risk Nexus in Emerging Markets?
Stefan Eichler
Review of Development Economics,
No. 3,
2017
Abstract
This paper studies the role of political factors for determining the impact of banking sector distress on sovereign bond yield spreads for a sample of 19 emerging market economies in the period 1994–2013. Using interaction models, I find that the adverse impact of banking sector distress on sovereign solvency is less pronounced for countries with a high degree of political stability, a high level of power sharing within the government coalition, a low level of political constraint within the political system, and for countries run by powerful and effective governments. The electoral cycle pronounces the bank risk–sovereign risk transfer.
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Drivers of Systemic Risk: Do National and European Perspectives Differ?
Claudia M. Buch, Thomas Krause, Lena Tonzer
Abstract
In Europe, the financial stability mandate generally rests at the national level. But there is an important exception. Since the establishment of the Banking Union in 2014, the European Central Bank (ECB) can impose stricter regulations than the national regulator. The precondition is that the ECB identifies systemic risks which are not adequately addressed by the macroprudential regulator at the national level. In this paper, we ask whether the drivers of systemic risk differ when applying a national versus a European perspective. We use market data for 80 listed euro-area banks to measure each bank’s contribution to systemic risk (SRISK) at the national and the euro-area level. Our research delivers three main findings. First, on average, systemic risk increased during the financial crisis. The difference between systemic risk at the national and the euro-area level is not very large, but there is considerable heterogeneity across countries and banks. Second, an exploration of the drivers of systemic risk shows that a bank’s contribution to systemic risk is positively related to its size and profitability. It decreases in a bank’s share of loans to total assets. Third, the qualitative determinants of systemic risk are similar at the national and euro-area level, whereas the quantitative importance of some determinants differs.
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The Risk‐Taking Channel of Monetary Policy in the U.S.: Evidence from Corporate Loan Data
Manthos D. Delis, Iftekhar Hasan, Nikolaos Mylonidis
Journal of Money, Credit and Banking,
No. 1,
2017
Abstract
To study the presence of a risk-taking channel in the U.S., we build a comprehensive data set from the syndicated corporate loan market and measure monetary policy using different measures, most notably Taylor (1993) and Romer and Romer (2004) residuals. We identify a negative relation between monetary policy rates and bank risk-taking, especially in the run up to the 2007 financial crisis. However, this effect is purely supply-side driven only when using Taylor residuals and an ex ante measure of bank risk-taking. Our results highlight the sensitivity of the potency of the risk-taking channel to the measures of monetary policy innovations.
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Why They Keep Missing: An Empirical Investigation of Rational Inattention of Rating Agencies
Gregor von Schweinitz, Makram El-Shagi
Abstract
Sovereign ratings have frequently failed to predict crises. However, the literature has focused on explaining rating levels rather than the timing of rating announcements. We fill this gap by explicitly differentiating between a decision to assess a country and the actual rating decision. Thereby, we account for rational inattention of rating agencies that exists due to costs of reassessment. Exploiting information of rating announcements, we show that (i) the proposed differentiation significantly improves estimation; (ii) rating agencies consider many nonfundamental factors in their reassessment decision; (iii) markets only react to ratings providing new information; (iv) developed countries get preferential treatment.
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