scholarly journals Investors’ expectations around quantitative easing: does liquidity injection affect European banks equally?

2021 ◽  
Author(s):  
Sara Longo ◽  
Antonio Parbonetti ◽  
Amedeo Pugliese
Keyword(s):  
Financial Stability ◽  
Global Financial Crisis ◽  
Capital Requirements ◽  
Quantitative Easing ◽  
Regulatory Capital ◽  
Fine Grained ◽  
Asset Portfolio ◽  
European Banks ◽  
The Global Financial Crisis

AbstractThe role of liquidity in the banking industry is increasingly under the spotlight since the Global Financial Crisis (GFC) in 2007. Prior evidence offers contrasting findings on the role played by liquidity in banks: whilst it ensures systemic financial stability, at the same time it raises agency costs. Notwithstanding this, European banks benefited from a generous liquidity injection following the launch of the Quantitative Easing (QE) programme by the European Central Bank (ECB) in 2015–2016. We leverage on the release of the QE and investigate whether investors’ reactions to the announcements of new liquidity injections vary according to bank-level characteristics of the European banks: namely, their financial soundness, asset portfolio quality and the level of transparency. Our findings document an overall negative market reaction to the QE announcements; at a more fine-grained level of analysis we highlight that banks falling short of the regulatory requirements are not expected to benefit from additional liquidity. This study contributes to the literature on the role of liquidity in banks by showing important boundary conditions to the beneficial role of liquidity in banks, that is—because of the regulatory capital requirements—liquidity is only valuable to investors if it can be reinvested once constraints are overcome.

scholarly journals Asymmetric Procyclicality of Chinese Banking and the Countercyclical Buffer of Basel III

2015 ◽  
Vol 2015 ◽  
pp. 1-9
Author(s):  
Yufeng Li ◽  
Zhongfei Li
Keyword(s):  
Financial Crisis ◽  
Banking Sector ◽  
Global Financial Crisis ◽  
Capital Requirements ◽  
Basel Iii ◽  
Time Varying ◽  
Regulatory Capital ◽  
Economy Growth ◽  
The Global Financial Crisis ◽  
Chinese Banking

Since the global financial crisis of 2007-2008, the importance of the procyclicality in the banking sector has been highlighted. One of the Basel III objectives is to promote countercyclical buffers and reduce procyclicality. We apply time-varying copula combined with GARCH model to test the existence of asymmetric procyclicality of Chinese banking. The results show that the procyclicality of Chinese banking is asymmetric, where the dependence between loan and economy growth is more correlated during the decline stage than the rise stage of economy. Based on this asymmetry, we suggest that the authority can use high frequent index for signalling the start point of releasing countercyclical buffer and accelerate the releasing pace to avoid the supply of credit being constrained by regulatory capital requirements in downturns.

scholarly journals A new paradigm of modern central banking

2013 ◽  
Vol 2 (2) ◽  
pp. 75-78
Author(s):  
Aleksandra Szunke
Keyword(s):  
Monetary Policy ◽  
Financial Stability ◽  
Global Financial Crisis ◽  
Central Banks ◽  
Central Banking ◽  
First Century ◽  
Financial Instability ◽  
New Paradigm ◽  
The Global Financial Crisis

The changes in the modern monetary policy, which took place at the beginning of the twenty-first century, in response to the global financial crisis led to the transformation of the place and the role of central banks. The strategic aim of the central monetary institutions has become preventing financial instability. So far, central banks have defined financial stability as a public good, which took care independently of other monetary purposes (Pyka, 2010). Unconventional monetary policy resulted in changes the global central banking. The aim of the study is to identify a new paradigm of the role and place of the central bank in the financial system and its new responsibilities, aimed at countering financial instability.

Money laundering and financial stability: does adverse publicity matter?

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Bahriye Basaran-Brooks
Keyword(s):  
Money Laundering ◽  
Financial Stability ◽  
Global Financial Crisis ◽  
Banking System ◽  
Public Confidence ◽  
Content Type ◽  
Reputational Risk ◽  
The Global Financial Crisis ◽  
The Impact

Purpose Already suffering reputational damage from the global financial crisis, banks face a further loss of trust due to their poor money laundering (ML) compliance practices. As confidence-driven institutions, the loss of reputation stemming from inadequate compliance with regulations and policies labels banks as facilitators of crime and destroys public trust both in the bank itself, peer banks and the wider banking system. Considering the links between financial stability and adverse publicity about banks, this paper aims to critically examine the implications of ML-specific bank information on financial stability. Design/methodology/approach This paper adopts a content analysis and a theoretical discussion by critically evaluating the role of bank compliance information on stability with references to recent case studies. Findings This paper establishes that availability of information regarding a bank involved in or facilitating ML might pose a threat to financial stability if bank counterparties cut their ties with the bank in question and when bank stakeholders show a strong and sudden negative reaction to adverse publicity. Though recent ML scandals have not caused immediate instability, general loss of confidence associated with reputational risk have had a destabilising effect on affected banks’ capital and liquidity. Originality/value There has been surprisingly little discussion to date on the impact of publicly available bank information on financial stability and public confidence within the ML compliance framework. This paper approaches the issue of publicly available banking compliance information solely through the prism of public confidence and reputational risk and its impact on macro-stability by examining recent ML scandals.

10 Conclusions

2020 ◽  
Keyword(s):  
Financial Crisis ◽  
Strong Correlation ◽  
Financial Stability ◽  
Global Financial Crisis ◽  
Public Law ◽  
Capital Requirements ◽  
Economic Consequences ◽  
High Quality ◽  
Private And Public ◽  
The Global Financial Crisis

This concluding chapter explains that since the 2008 global financial crisis, and largely because of it, a plethora of regulatory rules have been enacted globally to enhance financial stability. Several of these rules have had an impact on collateral transactions. First, besides a market-driven tendency to replacing unsecured finance with collateral transactions, stricter capital requirements have increased the need for banks to engage in transactions where funding is provided against high quality collateral. Second, regulatory initiatives which have been undertaken to address stability risks that materialized in the global financial crisis in the context of derivatives trading also have had an impact on the availability of high-quality collateral. Third, next to more stringent capital requirements and centralized clearing obligations, which both demand more liquidity, other regulatory rules limit the provision of liquidity. These post-crisis regulations not only have had important economic consequences on the (availability of) financial collateral, they also have important legal ramifications for collateral transactions themselves. As regards the legal (infra)structure of collateral transactions, the interaction between the private and public law rules shows a strong correlation with the interaction between supra-national and national law.

scholarly journals Bank regulation and risk in Europe and Central Asia since the global financial crisis

2020 ◽  
Vol 10 (1) ◽  
pp. 75-93
Author(s):  
Deniz Anginer ◽  
Asli Demirgüç-Kunt ◽  
Davide Salvatore Mare
Keyword(s):  
Financial Crisis ◽  
Central Asia ◽  
Financial Stability ◽  
Global Financial Crisis ◽  
Bank Risk ◽  
Bank Capital ◽  
Regulatory Capital ◽  
Capital Ratios ◽  
Definition Of ◽  
The Global Financial Crisis

This paper examines changes in bank capital and capital regulations since the global financial crisis, in the Europe and Central Asia region. It shows that banks in Europe and Central Asia are better capitalized, as measured by regulatory capital ratios, than they were prior to the crisis. However, the increase in simple equity ratios for the same banks has been smaller over the past 10 years. The increases in regulatory capital ratios have coincided with a reduction in the stringency of the definition of Tier 1 capital and reduction in risk-weights. We further analyze the relationship between bank capital and bank risk using individual bank data. We show that bank risk in Europe and Central Asia is more sensitive to changes in simple leverage ratios than changes in regulatory capital ratios, consistent with the notion that equity ratios only include high-quality capital and do not rely on internal risk models to compute risk-weights. Although there has been some effort to increase capital and liquidity requirements for institutions deemed systemically important, the region has been lagging in addressing the resolution of these institutions. In line with Demirguc-Kunt, Detragiache, and Merrouche (2013), our findings show the importance of the definition of bank capital to assure bank financial stability in Europe and Central Asia.

scholarly journals The role of corporate governance in reducing the global financial crisis implications in light of the Central Bank of Jordan

2020 ◽  
Vol 15 (3) ◽  
pp. 10-19
Author(s):  
Fouzan AL Qaisi
Keyword(s):  
Financial Crisis ◽  
Central Bank ◽  
Financial Stability ◽  
Global Financial Crisis ◽  
Capital Adequacy ◽  
Capital Adequacy Ratio ◽  
Study Results ◽  
Dependent Variables ◽  
The Global Financial Crisis

The study aims to test the role of the measures implemented by the Central Bank of Jordan to reduce the effect of financial crisis on the Jordanian banks, using two independent variables (loans and advances rate, overnight deposit window), which are the actions of the Central Bank of Jordan, and four dependent variables (liquidity ratio, ROA ratio, capital adequacy ratio, non-performing loans ratio), which are financial stability indicators for the banks for six years (2005–2011). To get the study results, these data are measured and analyzed using SPSS (Statistical Package for Social Sciences). It was found that the actions of the Central Bank of Jordan (loans and advances rate, overnight deposit window rate): have a statistically significant impact on the non-performing loans ratio (2005–2011); do not have a statistically significant impact on the capital adequacy ratio (2005–2011); have a statistically significant impact on ROA ratio (2005–2011); do not have a statistically significant impact on the liquidity ratio (2005–2011).

Bank Bailouts and Bail-Ins

2019 ◽  
pp. 629-684
Author(s):  
Raluca A. Roman
Keyword(s):  
Financial Institutions ◽  
Financial Stability ◽  
Recent Literature ◽  
Global Financial Crisis ◽  
Capital Requirements ◽  
Costs And Benefits ◽  
The Us ◽  
Social Costs And Benefits ◽  
The Global Financial Crisis ◽  
Bank Bailouts

During the global financial crisis, governments bailed out banks when their failures threatened to undermine economic and financial stability. After the crisis, governments tried to end bailouts by raising capital requirements, increasing supervisory rules and oversight, and introducing bail-in provisions that require creditors and/or equity holders to assume losses and help recapitalize distressed banks. Some important policy questions are whether bailouts have been effective in meeting their primary goals and whether bail-ins as alternatives can be effective in reducing the need for bailouts and resolving financial institutions facing distress and failure going forward. This chapter surveys the recent literature and other evidence from the US and EU on bailouts and bail-ins to better understand their economic and social costs and benefits. We also discuss briefly other methods to deal with the resolution of distressed large financial institutions.

scholarly journals The Determinants of Credit Risk: An Evidence from ASEAN and GCC Islamic Banks

2020 ◽  
Vol 13 (5) ◽  
pp. 89 ◽  
Author(s):  
Faridah Najuna Misman ◽  
M. Ishaq Bhatti
Keyword(s):  
Panel Data ◽  
Financial Crisis ◽  
Credit Risk ◽  
Global Financial Crisis ◽  
Generalized Least Squares ◽  
Capital Requirements ◽  
Risk Level ◽  
Islamic Banks ◽  
Regulatory Capital ◽  
The Global Financial Crisis

In less than a decade, the Islamic Banking (IB) industry has become an essential part of the global financial system. During the last ten years, the IB industry has witnessed changes in economic conditions and proved to be resilient during the periods of financial crisis. This paper aims to examine the important issues related to credit risk in selected Islamic banks in nine countries from Association of South East Asian Nations (ASEAN) and Gulf Cooperation Council (GCC) regions. It employs the generalized least squares panel data regression, to estimate the ratio of non-performance financing to total financing as dependent variables and bank specific variables (BSV) to determine the credit risk. It uses 12 years of unbalanced panel data from 40 different Islamic banks. The overall findings show that financing quality has a significant positive effect on credit risk. It is observed that the larger IBs owned more assets with lower credit risk compared to smaller banks. The bank’s age is also an important factor influencing the credit risk level. Moreover, regulatory capital significantly reduces the credit risk exposure adherence to the minimum regulatory capital requirements which help IBs to manage their credit risk exposures. It was also observed that IBs were not affected by the global financial crisis due to less credit risk compared to the conventional banks.

scholarly journals The Effect of Central Bank Communication on the Capital Buffer of Banks: Evidence from an Emerging Economy

2018 ◽  
Vol 3 (1) ◽  
pp. 1-26
Author(s):  
Rodolfo Tomás da Fonseca Nicolay ◽  
Claudio Oliveira de Moraes ◽  
Bruno Pires Tiberto
Keyword(s):  
Monetary Policy ◽  
Central Bank ◽  
Interest Rates ◽  
Financial Stability ◽  
Global Financial Crisis ◽  
Regulatory Capital ◽  
Communication Signals ◽  
Central Bank Communication ◽  
The Interest Rate ◽  
The Global Financial Crisis

The global financial crisis has revealed that the coordination between monetary policy and financial stability should be part of economic policy. This study examines the effects of monetary policy on the capital buffer (financial stability proxy) in the Brazilian economy and, in particular, how communication about both monetary policy and normative macroprudential policy affect the capital buffer maintained by banks. The study presents three main results: i) banks react strongly to monetary policy changes by increasing (reducing) the capital buffer in response to an increase (decrease) in the interest rate; ii) banks increase (decrease) the capital buffer when the central bank monetary policy communication signals an increase (decrease) in interest rates; and iii) banks use the capital buffer to accommodate the new measures of regulatory capital: the announcement of restrictive (liberalizing) capital measures reduces (increases) the capital buffer.

Leverage, investment, and recovery from a financial crisis: the role of debt overhang

2019 ◽  
Vol 37 (1) ◽  
pp. 143-159
Author(s):  
Andreas Kuchler
Keyword(s):  
Panel Data ◽  
Financial Crisis ◽  
Financial Stability ◽  
Global Financial Crisis ◽  
Slow Recovery ◽  
Content Type ◽  
Debt Overhang ◽  
Macroeconomic Volatility ◽  
The Global Financial Crisis

Purpose Private investment in advanced economies contracted sharply during the downturn that followed the global financial crisis. A substantial debt overhang has been one proposed explanation for this development. This paper evaluates the role of debt overhang for the slow recovery in investment in Denmark, a country in which levels of private debt rapidly increased before the crisis. Design/methodology/approach Based on firm-level panel data, this paper evaluates the links between debt and investment dynamics for individual firms during the downturn that followed the global financial crisis. Findings High leverage contributed to a slow recovery in investment during the downturn that followed the financial crisis, in particular for small and medium-sized enterprises. The effect cannot solely be attributed to mean reversion in investment. Research limitations/implications Results point to the existence of a separate leverage or “balance sheet” channel with implications for macroeconomic volatility and financial stability. Practical implications Macroprudential or microprudential measures to counteract the build-up of excess leverage during upswings may contribute to reducing macroeconomic volatility and improving financial stability. Originality/value In contrast to previous studies, the panel dimension of data is used to take mean reversion in investment into account. The large, nationally representative panel data set allows to assess the macroeconomic relevance of the results, as well as enables subsample splits which are used to gain insights into potential mechanisms through which debt overhang impacts investment.

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