Interbank financing and business cycle in Europe

2019 ◽  
Vol 46 (6) ◽  
pp. 1280-1291 ◽  
Author(s):  
Ly Kim Cuong ◽  
Vo Xuan Vinh
Keyword(s):  
Business Cycle ◽  
Banking Sector ◽  
Financial Structure ◽  
Policy Makers ◽  
Content Type ◽  
Level Data ◽  
The Business Cycle ◽  
The Stability ◽  
Liquidity Shock

Purpose The knowledge of the link between interbank financing and business cycle fluctuations is important in assessing the stability and soundness of the banking sector. The purpose of this paper is to investigate the simultaneous relationship between interbank financing and the business cycle with respect to the financial structure of the bank-based and market-based systems in European countries by using bank-level data from 2007 to 2011. Design/methodology/approach The study employs an innovative instrumenting technique with an instrument of the financial structure to address the simultaneous determination of interbank financing and the business cycle. Findings The results suggest that banks establish pro-cyclical interbank borrowing by increasing their interbank position during booms and reducing it during downturns. Bank-based system performs better in redistributing the liquidity in the economy than the market-based system when there are imperfectly correlated liquidity shocks across regions during the 2007–2009 financial crisis. Practical implications The improvement of banks’ liquidity risk management should be aligned with a specific financial system. The macro-prudential supervisor should require banks in the market-based system to disclose their interbank position on the extent of risk exposure during the liquidity shock period to stabilize the EU banking industry. Originality/value This study is the first to provide policy makers with some novel empirical results concerning the linkage among bank liquidity, the macroeconomic condition and financial structure.

scholarly journals Capital buffers based on banks’ domestic systemic importance: selected issues

2015 ◽  
Vol 7 (3) ◽  
pp. 207-220 ◽  
Author(s):  
Michal Skorepa ◽  
Jakub Seidler
Keyword(s):  
Banking Sector ◽  
Relevant Literature ◽  
Capital Requirements ◽  
Content Type ◽  
Individual Level ◽  
Level Data ◽  
National Bank ◽  
Key Steps ◽  
Importance Assessment

Purpose – The purpose of this paper is to assist the numerous regulators around the globe who are currently considering ways to impose domestic systemic importance-based capital requirements on banks. Design/methodology/approach – The article discusses in some detail a number of issues from the viewpoint of regulatory practice, mentioning relevant literature where available. Comments partly reflect the experience that the Czech National Bank gathered over the past two years while preparing its own regime of domestic systemic importance-based capital requirements on banks. Findings – The authors stress, among other points, one weakness of the (otherwise well-designed) method suggested by the Basel Committee for Banking Supervision (BCBS) for assessment of banks’ systemic importance: the method is “relative” in that it does not reflect the absolute importance of the banking sector for the economy. The paper also explains that in some cases, use of individual-level rather than consolidated-level data may be preferable, in contrast to what the BCBS guidance suggests. Further, implications of the buffers over a longer term are pointed out. Originality/value – As far as the authors are aware, this article is the first to comprehensively discuss the main issues surrounding both key steps (systemic importance assessment and determination of buffer level) in the process of introducing buffers based on domestic systemic importance. A number of questions related to these two steps are raised which regulators may appreciate to be reminded of, even if some of the questions are such that it is not possible to give a generally applicable answer to them.

Trade credit dynamics during the phases of the business cycle – a value chain perspective

2016 ◽  
Vol 21 (3) ◽  
pp. 363-380 ◽  
Author(s):  
Harri Lorentz ◽  
Tomi Solakivi ◽  
Juuso Töyli ◽  
Lauri Ojala
Keyword(s):  
Business Cycle ◽  
Value Chain ◽  
Small Firms ◽  
Trade Credit ◽  
Task Interdependence ◽  
Working Capital ◽  
Content Type ◽  
A Value ◽  
The Business Cycle

Purpose The purpose of this paper is to provide evidence of how the business cycle affects net-trade-credit and its components in firms on different tiers of the value chain, including retail, wholesale and two consecutive manufacturing tiers. Design/methodology/approach Data were collected by the means of four surveys in the years 2006, 2009, 2012 and 2014, representing different phases of the business cycle, that is, from strong economic growth to a deep recession and on to slow recovery and finally into decline. Descriptive statistics and three ANOVA models were used in the analysis of the data. Findings The distinctive profile of each value chain tier appears to have an effect on tier-specific trade credit dynamics. Overall, upstream positioned firms and small firms are likely to experience a decline in the net-trade-credit during uncertain economic times. The type of task interdependence between tiers also appears to affect trade credit dynamics in some tiers of the value chain. Furthermore, initiated by recession, certain trade credit dynamics in the value chain suggest a mechanism that transmits an increased working capital burden from customers to suppliers along the value chain. Research limitations/implications Results are based on survey research with a limited amount of respondents and geographical coverage, implying limited generalisability. The use of implicit measures limits the conclusiveness of the research. Originality/value The conventional perception of the power-based determination of trade credit policies is complemented with a value chain-related task interdependence perspective. The results of this paper also highlight that a more holistic value chain perceptive on working capital management would be more sustainable in comparison to firm-centric approaches.

Household micro-data, regulation and financial stability: the case of Denmark in the 1950s

2016 ◽  
Vol 33 (2) ◽  
pp. 320-335 ◽  
Author(s):  
Kim Abildgren
Keyword(s):  
Financial Stability ◽  
Banking Sector ◽  
Micro Data ◽  
Content Type ◽  
Household Level ◽  
Household Sector ◽  
Level Data ◽  
The 1950S ◽  
The Stability ◽  
Stability Issues

Purpose The 1950s was characterised by pronounced stability of the banking sector in many countries, which the existing literature has attributed to tight regulation. However, other factors than regulation are important for financial stability. The purpose of this paper is to consider the case of Denmark and investigate whether the absence of banking crises was due to robustness of the banking sector’s customers rather than tight regulation. Design/methodology/approach The paper analyses the resilience of Danish wage and salary earners to adverse economic shocks in the 1950s based on household-level data on income, consumption, savings and wealth from the Danish Expenditure and Saving Survey of 1955. Findings The paper finds that the Danish household sector in the 1950s had a high debt payment ability and was very robust to even large income shocks. The results indicate that the stability of the Danish financial sector was not only due to tight regulation but also reflected a high credit quality of the banking sector’s loan portfolio. Originality/value During the past decade or so, a micro-data-based framework has become the “state of the art” approach among central banks to analyse the financial robustness of the household sector. However, such an approach has so far not been applied in studies on historical financial-stability issues. The paper adds to the literature by using granular household-level data to assess the financial resilience of the Danish household sector in the 1950s.

The entrepreneurship-unemployment nexus in Croatia

2017 ◽  
Vol 6 (3) ◽  
pp. 375-384 ◽  
Author(s):  
James E. Payne ◽  
Andrea Mervar
Keyword(s):  
Business Cycle ◽  
Transition Economy ◽  
Data Availability ◽  
The European Union ◽  
Causality Test ◽  
Policy Makers ◽  
Content Type ◽  
Vector Autoregressive ◽  
Self Employment ◽  
The Business Cycle

Purpose The purpose of this paper is to extend the literature on the entrepreneurship-unemployment nexus to the case of Croatia. Design/methodology/approach The study uses the Toda-Yamamoto causality test within a vector autoregressive model to determine the causal dynamics between the self-employment rate (SER), unemployment rate (UR), industrial production, and credit in the case of Croatia from March 1998 to December 2016. Findings The results reveal support for the recession-push hypothesis. Specifically, the authors find that an increase in the UR Granger causes an increase in the SER. Research limitations/implications Due to data availability, a more detailed analysis of self-employment by industry was prohibitive. Practical implications The results emphasize the importance of recognizing business cycle dynamics and the availability of credit when evaluating the causal relationship between entrepreneurship and unemployment. Social implications As policy makers view entrepreneurship as a potential remedy for unemployment, particular attention needs to be given to both the phases of the business cycle and credit availability to support entrepreneurial ventures in the design of policy. Originality/value Previous studies on the causal dynamics between entrepreneurship and unemployment pertain to OECD countries. This is the first study to examine a transition economy recently admitted to the European Union.

Government spending shocks and economic growth: additional evidence from cyclical behavior of fiscal policy

2020 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Olumide Olusegun Olaoye ◽  
Ukafor Ukafor Okorie ◽  
Oluwatosin Odunayo Eluwole ◽  
Mahmood Butt Fawwad
Keyword(s):  
Economic Growth ◽  
Business Cycle ◽  
Government Spending ◽  
Generalized Method Of Moments ◽  
The State ◽  
Fiscal Policies ◽  
Asymmetric Effect ◽  
Content Type ◽  
Spending Shocks ◽  
The Business Cycle

PurposeThis study examines the asymmetric effect of government spending on economic growth in Nigeria over the period 1980–2017. Specifically, this study investigates whether the response of economic growth to government spending shocks differs according to the nature of shocks on them. In addition, the authors examine whether the stabilizing effects of fiscal policies are dependent on the state of the business cycle.Design/methodology/approachThe study adopts the linear fiscal reaction function in addition to the nonlinear regression model of Hatemi-J (2011, 2012), Granger and Yoon (2002), which allows us to separate negative shocks from positive shocks to government spending. Similarly, the authors adopt the generalized method of moments (GMM) techniques of Hansen (1982) to account for simultaneity and endogeneity problems inherent in dynamic model.FindingsThe authors’ findings reveal that there is evidence of asymmetry in the government spending–economic growth nexus in Nigeria over the period of study. Specifically, the authors find that the response of economic growth to government spending shocks differs according to the nature of shocks on them. More specifically, the study established that the stabilizing effects of fiscal policies are dependent on the state of the business cycle.Originality/valueUnlike the traditional method of modeling asymmetry, which adopts the simple inclusion of a squared government spending term or by the inclusion of a cubic government spending term, the model adopted in this study allows us to model shocks and show how the responses of economic growth to government expenditure differ according to the nature of shocks on them.

The Association Between Bank Credit Terms and Conditions and the Business Cycle in the Euro Area

2019 ◽  
Vol 65 (4) ◽  
pp. 247-256
Author(s):  
Dimitrios Anastasiou ◽  
Konstantinos Drakos
Keyword(s):  
Business Cycle ◽  
Euro Area ◽  
Bank Loan ◽  
Bank Credit ◽  
Monetary Policies ◽  
Policy Makers ◽  
Long Run ◽  
Loan Terms ◽  
Short Run ◽  
The Business Cycle

Abstract We explored the trajectory of bank loan terms and conditions over the business cycle, where the latter was decomposed into its long-run (trend) and short-run (cyclical) components. We found that deterioration of each business cycle component leads to a significant tightening of credit terms and conditions. We found mixed results concerning the symmetry of impacts of the short and long run components. Symmetry was found between the terms and conditions on loans for small vs. large enterprises. Our findings provide very useful information to policy makers and should be taken into consideration when monetary policies are designed.

scholarly journals The Vietnamese business cycle in an estimated small open economy New Keynesian DSGE model

2020 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Phuong V. Nguyen
Keyword(s):  
Business Cycle ◽  
Open Economy ◽  
Small Open Economy ◽  
Research Paper ◽  
New Keynesian ◽  
Dsge Model ◽  
Content Type ◽  
Business Cycle Fluctuations ◽  
Dynamic Stochastic ◽  
The Business Cycle

PurposeThe primary purpose of this paper is to investigate the sources of the business cycle fluctuations in Vietnam. To this end, the author develops a small open economy New Keynesian dynamic stochastic general equilibrium (SOE-NK-DSGE) model. Accordingly, this model includes various features, such as habit consumption, staggered price, price indexation, incomplete exchange-rate pass-through (ERPT), the failures of the law of one price (LOOP) and the uncovered interest rate parity. It is then estimated by using the Bayesian technique and Vietnamese data 1999Q1–2017Q1. Based on the estimated model, this paper analyzes the sources of the business cycle fluctuations in this emerging economy. Indeed, this research paper is the first attempt at developing and estimating the SOE-NK-DSGE model with the Bayesian technique for Vietnam.Design/methodology/approachA SOE-NK-DSGE model—Bayesian estimation.FindingsThis paper analyzes the sources of the business cycle fluctuations in Vietnam.Originality/valueThis research paper is the first attempt at developing and estimating the SOE-NK-DSGE model with the Bayesian technique for Vietnam.

Economic freedom, competition and bank stability in Sub-Saharan Africa

2020 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Emmanuel Sarpong-Kumankoma ◽  
Joshua Yindenaba Abor ◽  
Anthony Q. Q. Aboagye ◽  
Mohammed Amidu
Keyword(s):  
Economic Freedom ◽  
Banking Sector ◽  
Generalized Method Of Moments ◽  
Sub Saharan Africa ◽  
Bank Stability ◽  
Content Type ◽  
Show Evidence ◽  
Negative Effect ◽  
Sub Saharan ◽  
The Stability

PurposeThis study aims to analyze the potential implications of economic freedom and competition for bank stability.Design/methodology/approachUsing system generalized method of moments and data from 139 banks across 11 Sub-Saharan African (SSA) countries during the period 2006–2012, this study considers whether the degree of economic freedom affects the relationship between competition and bank stability.FindingsThe results show evidence of the competition-fragility hypothesis in SSA banking, but suggests that beyond a setting threshold, increases in market power may also be damaging to bank stability. Financial freedom has a negative effect on bank stability, suggesting that banks operating in environments with greater financial freedom generally tend to be less stable or more risky. The authors also find evidence of a conditional effect of economic freedom on the competition–stability relationship, implying that bank failure is more likely to occur in countries with greater economic freedom, but with low competition in the banking sector.Practical implicationsThe results suggests to policy makers that a moderate level of competition and economic freedom may be the appropriate policy to ensure the stability of banks.Originality/valueThe study provides insight on the competition–bank stability relationship, by providing new empirical evidence on the effect of economic freedom, which has not been previously considered.

scholarly journals Panel modeling of z-score: evidence from Islamic and conventional Saudi banks

2019 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Hassan Belkacem Ghassan ◽  
Abdelkrim Ahmed Guendouz
Keyword(s):  
Financial Stability ◽  
Banking Sector ◽  
Stability Index ◽  
Z Score ◽  
Strong Concentration ◽  
Content Type ◽  
Quarterly Data ◽  
Annual Frequency ◽  
Conventional Banks ◽  
The Stability

Purpose This paper aims to measure the stability extent of the banking sector in Saudi Arabia, including Islamic and conventional banks (CBs), using quarterly data. Design/methodology/approach The paper uses seemingly unrelated regressions to estimate the determinants of the z-score. Findings The panel data model shows that Islamic banks (IBs) reduce the financial stability index relatively; meanwhile, they contribute efficiently to enhance the financial stability through the diversification of their assets. The Saudi banking sector exhibits strong concentration affecting the financial stability negatively. Research limitations/implications The paper’s topic can be extended to cover the recent period. Practical implications The limited presence of IBs in the Saudi banking sector jeopardizes any effort to improve the financial stability. Social implications By attracting more clients, IBs would contribute more to the financial stability in the Saudi economy. Also, the monetary authority has to expand the share of IBs in the financial system at least 50-50 compared to CBs. Originality/value The z-score is mostly analyzed with yearly data; in this paper we use quarterly data to describe at infra-annual frequency the variability of the z-score index. Also, we consider in detail the statistical properties of the banks’ data.

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