Excess euro-area liquidity raises bank lending risks

2019 ◽  
Keyword(s):  
Monetary Policy ◽  
Euro Area ◽  
Commercial Banks ◽  
Bank Lending ◽  
Domestic Demand ◽  
Basel Iii ◽  
Content Type ◽  
Reserve Requirements ◽  
Regulatory Standards ◽  
Excess Liquidity

Significance The ECB stopped purchasing bonds this month after running its asset purchase programme (APP) since March 2015. The APP flooded commercial banks with liquidity in excess of their minimum reserve requirements, which they could use to grant new loans. The ECB achieved its goal of increasing credit to the private sector, raising domestic demand and warding off price deflation, but commercial banks have kept large amounts of excess liquidity. Impacts Euro-area banks' average profitability has improved during the APP scheme, but less accommodating monetary policy may reverse this trend. The high prudential ratios the Basel III regulatory standards require should make euro-area banks more resilient to monetary tightening. The ECB's mopping up may pose difficulties to banks relying on excess liquidity to meet the Basel III coverage liquidity ratio.

Effectiveness and channels of macroprudential policies: lessons from the Euro area

2017 ◽  
Vol 25 (3) ◽  
pp. 271-306 ◽  
Author(s):  
Yuanyan Zhang ◽  
Thierry Tressel
Keyword(s):  
Monetary Policy ◽  
Euro Area ◽  
Global Financial Crisis ◽  
Bank Lending ◽  
Panel Var ◽  
Bank Capital ◽  
Credit Growth ◽  
Content Type ◽  
Macroprudential Policies ◽  
The Impact

Purpose The design of a macro-prudential framework and its interaction with monetary policy has been at the forefront of the policy agenda since the global financial crisis. However, most advanced economies (AEs) have little experience using macroprudential policies. As a result, relatively little is known empirically about macroprudential instruments’ effectiveness in mitigating systemic risks in these countries, about their channels of transmission, and about how these instruments would interact with monetary policy. This paper aims to fill in the gap. Design/methodology/approach The authors develop a new approach using the euro area bank lending survey to assess the effectiveness of macro-prudential policies in containing credit growth and house price appreciation in mortgage markets. Estimation is performed under the panel regressions (OLS, GLS) and panel VAR setup. Endogeneity issues arising from measures of macro-prudential policies are addressed by introducing GMM estimation and various instruments. Findings The authors find instruments targeting the cost of bank capital most effective in slowing down mortgage credit growth, and that the impact is transmitted mainly through price margins, the same banking channel as monetary policy. Limits on loan-to-value ratios are also effective, especially when monetary policy is excessively loose. Originality/value With limited data on macroprudential policy measures in the AEs, this paper proposed a new methodology of using answers from bank lending survey as proxies to assess the effectiveness of specific macroprudential measures and their transmission channels.

Regulatory capital requirements: can the banks mitigate the risk through lending rates?

2020 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Vighneswara Swamy
Keyword(s):  
Commercial Banks ◽  
Bank Lending ◽  
Capital Requirements ◽  
Basel Iii ◽  
Content Type ◽  
Percentage Point Increase ◽  
Point Increase ◽  
Lending Rate ◽  
Lending Rates ◽  
The Impact

PurposeThe purpose of this study is to investigate the impact of the new capital requirements under the Basel III framework on bank lending rates.Design/methodology/approachBy constructing a stylized representative bank's financial statements, the authors show that the higher cost associated with a 1-percentage increase in the capital ratio can be recovered by increasing the bank lending rate.FindingsThe results indicate that in the case of scheduled commercial banks, a 1-percentage-point increase in the capital ratio can be recovered by a commensurate increase in the bank lending rate by 16 basis points and would go up to an extent of 94 basis points for a 6-percentage point increase assuming that the risk-weighted assets are unchanged.Practical implicationsThe results assume significance as the estimations for the scenarios of changes in risk-weighted assets change in return on equity and the cost of debt. Given the enormous significance of the impact of Basel III on banks, this research outcome benefits the practitioners in the industry and researchers.Originality/valueThis study contributes to the literature on bank regulation and risk management with a newer and topical approach for quantification of the impacts of new regulatory standards. Another contribution of this study is that it considers three different groupings of banks: (1) scheduled commercial banks; (2) public sector banks and (3) private banks in Indian banking. This is the first of its kind in the context of studying Indian banking.

The international strength of the euro will grow

2021 ◽  
Keyword(s):  
Euro Area ◽  
Financial Services ◽  
Raw Materials ◽  
Domestic Demand ◽  
Content Type ◽  
The Us ◽  
Us Dollar ◽  
Strategic Autonomy ◽  
Geopolitical Risks ◽  
The Eu

Significance The proposals identified areas where the euro could potentially become more dominant, such as the issuance of green bonds, digital currencies, and international trade in raw materials and energy. Ambitions to enhance the international leverage of the euro are being driven by the aim to strengthen EU strategic autonomy amid rising geopolitical risks. Impacts Developing its digital finance sector would be an opportunity for the EU to enhance its strategic autonomy in financial services. Challenging the US dollar would require the euro-area to rebalance its economy away from foreign to domestic demand. Member state division will prevent the economic reconfiguration the euro-area needed to make the euro a truly global currency.

Perceived competition in agricultural lending: stylized facts and an agenda for future research

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Todd Kuethe ◽  
Chad Fiechter ◽  
David Oppedahl
Keyword(s):  
Commercial Banks ◽  
Bank Lending ◽  
Future Research ◽  
Land Values ◽  
Credit System ◽  
Stylized Facts ◽  
Content Type ◽  
Loan Rate ◽  
The Individual ◽  
Survey Responses

PurposeThis study examines agricultural lending by commercial banks and the competition they face from the Farm Credit System (FCS) and non-traditional lenders, including merchants, dealers and other input suppliers.Design/methodology/approachWe construct a measure of commercial banks' perceived competition with FCS or non-traditional lenders using the individual responses to the Federal Reserve Bank of Chicago's Land Values and Credit Conditions Survey between 1999 and 2019. Through regression analysis of an unbalanced panel of survey responses, we present a number of stylized facts on the relationship between perceived competition and farm loan rate spreads, collateral requirements, loan delinquencies and expected lending volumes.FindingsOur analysis shows that the two sources of competition have very different effects on commercial bank lending terms, loan portfolio riskiness and expected loan volumes. With these results in mind, we offer a number of suggestions for future research.Originality/valueWe leverage the unique characteristics of the Land Values and Credit Conditions Survey to examine the competition with non-traditional lenders that cannot be observed using administrative data.

Bank lending channel and banking sector efficiency: panel data of Egypt

2018 ◽  
Vol 13 (5) ◽  
pp. 1291-1310 ◽  
Author(s):  
Mohamed Aseel Shokr ◽  
Anwar Al-Gasaymeh
Keyword(s):  
Monetary Policy ◽  
Panel Data ◽  
Banking Sector ◽  
Generalized Method Of Moments ◽  
Bank Lending ◽  
Bank Loan ◽  
Bank Lending Channel ◽  
Bank Efficiency ◽  
Content Type ◽  
Lending Channel

Purpose The purpose of this paper is to examine the relevance of the bank lending channel (BLC) of monetary policy and the bank efficiency in Egypt. Design/methodology/approach This paper examines the effectiveness of bank lending channel using generalized method of moments GMM model during the period from 1996 to 2014. Also, it uses stochastic frontier approach (SFA) to examine the bank efficiency in Egypt. Findings This study supports the relevance of the BLC using panel data. Moreover, applying SFA, this paper computes cost efficiency taking account of both time and country effects directly. The finding suggests that banks with low inflation and high GDP tend to perform more efficiently. Research limitations/implications The limitation of the study is examining one country only. Practical implications The finding signals that the Central Bank of Egypt (CBE) should adjust interest rate in order to stabilize the bank loan supply. Social implications It is important for the CBE and Egyptian banks because it highlights the importance of BLC. Originality/value It examines one channel of monetary policy and bank efficiency in Egypt.

Linking bank regulatory capital buffer to business cycle fluctuations

2018 ◽  
Vol 45 (3) ◽  
pp. 565-585 ◽  
Author(s):  
Kolade Sunday Adesina ◽  
John Muteba Mwamba
Keyword(s):  
Panel Data ◽  
Market Power ◽  
Commercial Banks ◽  
Basel Iii ◽  
Regulatory Capital ◽  
Revenue Diversification ◽  
African Countries ◽  
Data Set ◽  
Content Type ◽  
Cyclical Behavior

Purpose The purpose of this paper is to assist bank regulators in Africa who are currently considering the implementation of Basel III countercyclical capital buffer (CCB) requirement. Design/methodology/approach Using a panel data set of 129 commercial banks operating in 14 African countries over the period 2004–2014, this paper estimates the system generalized method of moments regression to examine the impact of business cycle on banks’ regulatory capital buffers and attempts to identify the influence of bank revenue diversification, market power and cost of funding (CF) on bank regulatory capital buffers. It further carries out some robustness analyses using a panel data set of 257 commercial banks in 23 African countries over the period 2004–2014. Findings The results show that higher regulatory capital buffers are associated with higher market power, higher revenue diversification and higher CF. Additionally, the results show significant evidence of procyclical behavior of bank capital buffers (BUFs) in the sampled countries. Practical implications The results of this study suggest that African banking systems are not exposed to contagion and systemic risks arising from countercyclical movements of BUFs to the real economy. Therefore, this study does not support the implementation of the Basel III CCB requirement in the sampled African countries. Originality/value Considering that the results of existing studies on the cyclical behavior of BUFs are inconclusive, there is value in studying the cyclical movements of bank regulatory capital buffers in a set of countries that has not been analyzed before. Toward this direction, this is the first empirical study focusing on the cyclical behavior of bank regulatory capital buffers in Africa. Besides examining the cyclical behavior of bank regulatory capital buffers, this paper further investigates the effects of bank revenue diversification, market power and CF on bank regulatory capital buffers.

Basic Requirements Of The Basel Committee On Regulating Capital Adequacy And Liquidity Of Commercial Banks

2012 ◽  
Vol 4 ◽  
Author(s):  
Bahriddin Berdiyarov
Keyword(s):  
Risk Assessment ◽  
Commercial Banks ◽  
Basel Ii ◽  
Capital Adequacy ◽  
Basel Iii ◽  
Basel Committee ◽  
Performance Quality ◽  
Regulatory Standards ◽  
Loan Risk ◽  
Credit Risk Measurement

The current paper highlights theBaselI, Basel II & Basel III requirements on capital adequacy and liquidity of commercial banks.  In the paper, Basel II structure, methods of loan risk assessment, coefficients of loan risk assessment, credit risk measurement for counterparty banks are discussed.  Moreover, assessments of Basel III on bank chances against crisis driven from financial and economic crunches, risk management, performance quality and bank transparency improvement measures are presented.  At the end, the author gives his conclusions on the essence and necessity of new regulatory standards of the Basel Committee on bank’s supervision in the structure of the supervision of credit institutions.

Gloomy sentiment will spur stimulus in South Korea

2015 ◽  
Keyword(s):  
Monetary Policy ◽  
Foreign Policy ◽  
South Korea ◽  
Domestic Demand ◽  
The South ◽  
Content Type ◽  
South Korean ◽  
Sustained Growth ◽  
Korean Economy

Significance The recent fall in the price of oil was expected to provide a timely boost to the South Korean economy, but its performance in the first quarter of 2015, though rebounding from the previous quarter, has been below expectations. Beset by slowing exports and weak domestic demand, the mood in both the business and household sectors is downbeat. Impacts Absent a sustained growth rebound (or some kind of foreign policy breakthrough), Park's presidency will be seen as a failure. Deflation could threaten South Korea if there is no adjustment to monetary policy. An FTA with China will boost South Korean exports only in the longer term. The sharp depreciation of the euro will make Europe a challenging market for South Korea for now.

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