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Author: Mr.Giovanni Dell'Ariccia Publisher: International Monetary Fund ISBN: 1484381130 Category : Business & Economics Languages : en Pages : 41
Book Description
We present evidence of a risk-taking channel of monetary policy for the U.S. banking system. We use confidential data on the internal ratings of U.S. banks on loans to businesses over the period 1997 to 2011 from the Federal Reserve’s survey of terms of business lending. We find that ex-ante risk taking by banks (as measured by the risk rating of the bank’s loan portfolio) is negatively associated with increases in short-term policy interest rates. This relationship is less pronounced for banks with relatively low capital or during periods when banks’ capital erodes, such as episodes of financial and economic distress. These results contribute to the ongoing debate on the role of monetary policy in financial stability and suggest that monetary policy has a bearing on the riskiness of banks and financial stability more generally.
Author: Mr.Giovanni Dell'Ariccia Publisher: International Monetary Fund ISBN: 1484381130 Category : Business & Economics Languages : en Pages : 41
Book Description
We present evidence of a risk-taking channel of monetary policy for the U.S. banking system. We use confidential data on the internal ratings of U.S. banks on loans to businesses over the period 1997 to 2011 from the Federal Reserve’s survey of terms of business lending. We find that ex-ante risk taking by banks (as measured by the risk rating of the bank’s loan portfolio) is negatively associated with increases in short-term policy interest rates. This relationship is less pronounced for banks with relatively low capital or during periods when banks’ capital erodes, such as episodes of financial and economic distress. These results contribute to the ongoing debate on the role of monetary policy in financial stability and suggest that monetary policy has a bearing on the riskiness of banks and financial stability more generally.
Author: Stéphanie M. Stolz Publisher: Springer Science & Business Media ISBN: 3540485449 Category : Business & Economics Languages : en Pages : 163
Book Description
The year-long consultations on Basel II mirror the international popularity of capital requirements as a regulatory instrument. Yet, the impact of capital re quirements on banks' behavior is not fully understood. The aim of this study is to contribute to this understanding by answering the following questions: How do banks adjust capital and risk after an increase in capital requirements? How do banks adjust their regulatory capital buffer over the business cycle? And what is the impact of banks' charter value on the regulatory capital buffer? The research undertaken for this study has benefited from support in terms of ideas, research facilities, and, not least, financial funding. My thanks go first of all to Claudia M. Buch for her constant encouragement, her continuous guidance, and her confidence in my research ideas. My thanks go also to the Kiel Institute for World Economics and its staff for providing a very fertile academic ground for my research and for providing excellent research facilities. In fact, conduct ing this study would not have been possible without the support of my colleagues at the Kiel Institute and elsewhere. In particular, I am grateful to Horst Siebert for providing me the freedom to pursue this topic. My special thanks go to Jorg Breitung, Kai Carstensen, and Dieter Urban for providing input on econometric issues. I am also grateful to Andrea Schertler for the long and productive discus sions I had on various parts of this study.
Author: Mr.Luc Laeven Publisher: International Monetary Fund ISBN: 1455210838 Category : Business & Economics Languages : en Pages : 38
Book Description
We provide a theoretical foundation for the claim that prolonged periods of easy monetary conditions increase bank risk taking. The net effect of a monetary policy change on bank monitoring (an inverse measure of risk taking) depends on the balance of three forces: interest rate pass-through, risk shifting, and leverage. When banks can adjust their capital structures, a monetary easing leads to greater leverage and lower monitoring. However, if a bank's capital structure is fixed, the balance depends on the degree of bank capitalization: when facing a policy rate cut, well capitalized banks decrease monitoring, while highly levered banks increase it. Further, the balance of these effects depends on the structure and contestability of the banking industry, and is therefore likely to vary across countries and over time.
Author: Natalya Martynova Publisher: International Monetary Fund ISBN: 1513565818 Category : Business & Economics Languages : en Pages : 44
Book Description
Traditional theory suggests that more profitable banks should have lower risk-taking incentives. Then why did many profitable banks choose to invest in untested financial instruments before the crisis, realizing significant losses? We attempt to reconcile theory and evidence. In our setup, banks are endowed with a fixed core business. They take risk by levering up to engage in risky ‘side activities’(such as market-based investments) alongside the core business. A more profitable core business allows a bank to borrow more and take side risks on a larger scale, offsetting lower incentives to take risk of given size. Consequently, more profitable banks may have higher risk-taking incentives. The framework is consistent with cross-sectional patterns of bank risk-taking in the run up to the recent financial crisis.
Author: Michael Ohlrogge Publisher: ISBN: Category : Languages : en Pages : 86
Book Description
Does high leverage incentivize banks to systematically originate and hold riskier loans? I construct a novel data set consisting of 3 million small business and home mortgage loans, matched to the specific banks that originated them and verified to be held on bank portfolios, rather than sold. I measure the capital ratio (the inverse of the leverage ratio, defined as equity divided by asset value) for each bank at the time of each loan's origination. After controlling for both bank and time fixed effects, a one point increase in Tier 1 capital ratios (e.g. from 12% to 13%) is associated with a 4.9% decrease in the default risk of mortgage loans held on portfolio (from a mean foreclosure rate of 4.3% to 4.1% for loans originated between 2003 and 2012). When considering the average capital of banks in US counties between 2003 and 2006, a one point increase in Tier 1 capital ratios is associated with a 4.4% reduction in foreclosures between 2007 and 2012. These results are robust to an instrumental variables strategy for predicting bank capital, a wide range of measures of bank capital, different types of banks, types of loans, and time periods.
Author: Ouarda Merrouche Publisher: International Monetary Fund ISBN: 1455254878 Category : Business & Economics Languages : en Pages : 38
Book Description
Using a multi-country panel of banks, we study whether better capitalized banks experienced higher stock returns during the financial crisis. We differentiate among various types of capital ratios: the Basel risk-adjusted ratio; the leverage ratio; the Tier I and Tier II ratios; and the tangible equity ratio. We find several results: (i) before the crisis, differences in capital did not have much impact on stock returns; (ii) during the crisis, a stronger capital position was associated with better stock market performance, most markedly for larger banks; (iii) the relationship between stock returns and capital is stronger when capital is measured by the leverage ratio rather than the risk-adjusted capital ratio; (iv) higher quality forms of capital, such as Tier 1 capital and tangible common equity, were more relevant.
Author: Mr.Luc Laeven Publisher: International Monetary Fund ISBN: 1484363728 Category : Business & Economics Languages : en Pages : 34
Book Description
The proposed SDN documents the evolution of bank size and activities over the past 20 years. It discusses whether this evolution can be explained by economies of scale or “too big to fail” subsidies. The paper then presents evidence on the extent to which bank size and market-based activities contribute to systemic risk. The paper concludes with policy messages in the area of capital regulation and activity restrictions to reduce the systemic risk posed by large banks. The analysis of the paper complements earlier Fund work, including SDN 13/04 and the recent GFSR chapter on “too big to fail” subsidies, and its policy message is in line with this earlier work.
Author: Mr.Giovanni Dell'Ariccia
Author: Mr.Giovanni Dell'Ariccia
Author: Stéphanie M. Stolz
Author: Mr.Luc Laeven
Author: Natalya Martynova
Author: Michael Ohlrogge
Author: Ouarda Merrouche
Author: Stéphanie Stolz
Author: 
Author: Mr.Luc Laeven
Author: Belinda Traceyl