1,354,167 research outputs found
Persistency of Window Dressing Practices in the U.S. Repo Markets after the GFC: The Unexplored Role of the Deposit Insurance Premium
No full textWe investigate whether the regulatory improvements made in the aftermath of the global financial crisis (GFC) have been effective in limiting bank downward window dressing by means of repos in the U.S. Using hand-collected data of U.S. bank holding companies (BHCs) over the period 2011Q2-2016Q1, we find that a strict application of the Basel III regulation wipes out incentives to engage in window dressing to bolster the level of leverage Tier 1 ratio at quarter-end. We also uncover an unexplored channel that induces banks to window dress. Specifically, we show that the persistency of window dressing is related to the computation of the Federal Deposit Insurance Corporation assessment base, which motivates banks to engage in window dressing to reduce the deposit insurance premium. Our findings call for greater emphasis on supervision of banks’ window dressing practices
Centralised or decentralised banking supervision? Evidence from European banks
No full textThis paper analyses the impact of the Banking Union on European bank credit risk. Specifically, we investigate the effect that the establishment of the Single Supervisory Mechanism has had on the credit risk of the banks it supervises in comparison to financial institutions that are still supervised by National Supervisory Authorities. We analyse a sample of 746 European banks over the period 2011–2018, by means of a difference-in-differences methodology. We provide empirical evidence that Single Supervisory Mechanism supervised banks reduced credit risk exposure compared to banks supervised by National Supervisory Authorities, suggesting that the Banking Union has successfully reduced the riskiness of the European banking sector. Our results passed a battery of robustness tests that support the reliability of our analysis. Our contribution sheds light on the benefits of centralised versus decentralised supervision, on the effectiveness of the current supervisory system in Europe, and on its impact on European bank risk
Fly You Fools! The Unintended Consequences of the Negative Interest Rate Policy
No full textThe aim of this doctoral thesis is to study the recent use of negative interest rates focusing on
the impact that the negative interest rate policy (NIRP thereafter) has on bank profitability,
lending and sovereign bond holding. After providing a definition and contextualisation of
NIRP, this thesis addresses three different research questions.
The first research question will focus on the impact of NIRP on bank profitability and
consequently on financial stability. A cut in interest rates into negative territory may increase
bank profitability if there is significant loan growth and margins are unaffected, or/and if banks
boost fee and commission income on the back of greater lending. However, if banks are unable
to reduce deposit rates to the same extent as loan rates then margins will be compressed, and if
there is limited loan growth and/or cross-selling of fee and commission services then profits
will likely fall. If the latter is the case, the decline in profits can erode bank capital bases and
further limit credit growth thus stifling NIRP monetary transmission effects. The first paper
addresses this serious concern. It examines whether or not, after the introduction of NIRP,
banks margins and profits have been negatively affected. Furthermore, it investigates if
negative rates have promoted a change in bank business model. The contraction of net interest
margin could have affected banks business model promoting a switch from interest-based to
fee-based activities.
The second paper is strongly linked to the first. If NIRP decreases banks profitability eroding
capital base, banks may be reluctant to lend limiting monetary policy potential and expected
outcome. The second research question addresses this point. It tries to capture whether or not
after the implementation of NIRP banks increased or decreased lending in comparison with a
control group who has not been affected by negative rates. The effect of NIRP on bank lending
may further be aggravated in the European context where banks have been facing slow
economic recovery, historically high levels of non-performing loans, and a post GFC and
European sovereign debt crisis deleveraging phase. In this economic environment, banks could
have employed the excess liquidity provided by central banks unconventional monetary policy
measures to buy corporate and government debt securities rather than lending. This behaviour
links to the third research question.
7
The third research question investigates banks sovereign bond holding during the low and
negative interest rate environment that has characterised the period after the 2007/2008
Financial Crisis and European Sovereign Debt Crisis. In such a situation, banks may prefer to
hold sovereign bonds rather than lending for the following reasons. First, prudential regulation
favours sovereign debt over loans as it assigns neither capital charges (zero-risk-weights) nor
portfolio concentration limits. Banks with low capital ratio may increase return on equity by
shifting from low to high yield sovereigns without altering regulatory capital requirements.
Second, in a period with slow economic recovery, historically high level of non-performing
loans, increasing loan loss provisions and low interest rates, sovereign debt can act as a
substitute for credit affecting banks’ lending decision. The same reasons, as previously
described, can negatively affect bank profitability suggesting that banks may have an incentive
to purchase high yield sovereign debt securities to improve profitability conditions (carry trade hypothesis
Bank Margins and Profits in a World of Negative Rates
No full textBy investigating the influence of negative interest rate policy (NIRP) on bank margins and profitability, this paper identifies country- and bank- specific characteristics that amplify or weaken the effect of NIRP on bank performance. Using a dataset comprising 7,359 banks from 33 OECD member countries over 2012-2016 and a difference-in-differences methodology, we find that bank margins and profits fell in NIRP-adopter countries compared to countries that did not adopt the policy. Moreover, this adverse NIRP effect depends on bank specific-characteristics such as size, funding structure, business models, assets repricing and product – line specialization. The effectiveness of the pass-through mechanism of NIRP can also be affected by the characteristics of a country's banking system, namely, the level of competition and the prevalence of fixed/floating lending rates
Does gender diversity in the workplace mitigate climate change?
No full textWe match firm-corporate governance characteristics with firm-level carbon dioxide (CO2) emissions over the period 2009–2019 to study the relationship between gender diversity in the workplace and firm carbon emissions. We find that a 1 percentage point increase in the percentage of female managers within the firm leads to a 0.5% decrease in CO2 emissions. We document that this effect is statistically significant, also when controlling for institutional differences caused by more patriarchal and hierarchical cultures and religions. At the same time, we show that gender diversity at the managerial level has stronger mitigating effects on climate change if females are also well-represented outside the organization, e.g. in political institutions and civil society organizations. Finally, we find that, after the Paris Agreement, firms with greater gender diversity reduced their CO2 emissions by about 5% more than firms with more male managers
A new measure for gauging the riskiness of European banks' sovereign bond portfolios
No full textFor a sample of 51 European banks, during 2010-2016, we construct a novel measure (SovRisk) which captures the riskiness of sovereign bond portfolios. We demonstrate the ability of this measure to explain the phases of the European sovereign debt crisis while accounting for the substantial differences between distressed and non-distressed countries. We contend that SovRisk can be used as a complement to bank Credit Default Swap (CDS) spreads, or a substitute in the absence of traded CDS, for measuring banks’ sovereign risk
Banks' noninterest income and securities holdings in a low interest rate environment: The case of Italy
No full textUsing a sample of 440 Italian banks over the period 2007–2016, we find that low interest rates motivate banks to expand their fee and commission income and to restructure their securities portfolios. A granular breakdown suggests that banks grow noninterest income in various ways, including portfolio management, brokerage and consultancy services and increase fee income from current account and payment services. In addition, banks rebalance securities portfolios away from those “held for trading” to securities “available for sale” and “held to maturity.” Our findings allude to different behavior between large and small banks: while larger banks increase brokerage, consultancy and portfolio management services, smaller banks generate fees from customer current accounts
Do banks practice what they preach? Brown lending and environmental disclosure in the euro area
No full textThis study examines whether the level of environmental disclosure in banks’ financial reports matches less brown lending portfolios. Using granular credit register data and detailed information on firm-level greenhouse gas emission intensities, we find a negative relationship between environmental disclosure and brown lending. However, this effect is contingent on the tone of the financial report. Banks that express a negative tone, reflecting genuine concern and awareness of environmental risks, tend to lend less to more polluting firms. Conversely, banks that express a positive tone, indicating lower concern and awareness of environmental risks, tend to lend more to polluting firms. These findings highlight the importance of increasing awareness of environmental risks, so that banks perceive them as a critical and urgent pressing threat, leading to a genuine commitment to act as environmentally responsible lenders
Do negative interest rates affect bank risk-taking?
No full textWe offer early evidence on the impact of negative interest rate policy (NIRP) on banks’ risk-taking. Our primary result shows banks in NIRP-adopter countries reduce holdings of risky assets by around 10 percentage points following implementation of NIRP in comparison to banks in non-adopter countries. We augment this result by identifying NIRP’s impact on other aspects of banks’ risk-taking behaviour; NIRP is associated with reductions in banks’ loan growth and average loan price (by 3.7 percentage points and 59 basis points) and a rebalancing of asset portfolios towards safer assets. Secondly, we find the NIRP-effect is heterogeneous; post-NIRP risk-taking increases at strongly capitalised banks and at banks operating in less competitive markets that exploit market power to insulate net interest margins and profitability. Our robust empirical evidence supports the “de-leverage” hypothesis which suggests that banks acquire safer, liquid assets to bolster their capital positions rather than searching for value by acquiring riskier assets. We base our evidence on a sample of 2,584 banks from 33 OECD countries across 2012 to 2016, and from models that employ a difference-in-differences framework
Reconsidering the modernization hypothesis: The role of diversified production and interest-group competition
No full textThe modernization hypothesis attributes democracy to higher incomes. The hypothesis has been controversial with claims of no relationship or opposite causality. Using data on a large sample of countries over the period from 1995 to 2015, we show empirically that the hypothesis is valid by studying the role of diversified production and interest-group competition. Production diversification increases incomes and is associated with emergence of competing organized interest groups representing the different diversified sectors. The interest-group competition underlies democracy by restraining rent seeking for benefits that would otherwise be sought through single-decision-maker authoritarian government
- …
