(The Liquidity Management of the Banking Sector and the Short-Term Money Market Interest Rates)

2016 ◽  
Author(s):  
V I Morgunov
Keyword(s):  
Interest Rates ◽  
Banking Sector ◽  
Money Market ◽  
Short Term ◽  
Liquidity Management

Central Bank Liquidity Management and the Signal Extraction Problem on the Money Market / Die Liquiditätssteuerung der Notenbank und das Signal-extraktionsproblem am Geldmarkt

2000 ◽  
Vol 220 (3) ◽  
pp. 284-301
Author(s):  
Ulrich Bindseil
Keyword(s):  
Monetary Policy ◽  
Central Bank ◽  
Interest Rates ◽  
Term Structure ◽  
Management Strategies ◽  
Money Market ◽  
Signal Extraction ◽  
Maintenance Period ◽  
Liquidity Management ◽  
Expectation Theory

Summary Understanding the factors determining overnight rates is crucial both for central bankers and private market participants, since, assuming the validity of the expectation theory of the term structure of interest rates, expectations with regard to this “monadic” maturity should determine longer term rates, which are deemed to be relevant for the transmission of monetary policy. The note proposes a simple model of the money market within a two-day long reserve maintenance period to derive relationships between the relevant quantities, expectations concerning these quantities for the rest of the reserve maintenance period, and overnight rates. It is argued that a signal extraction problem faced by banks when observing quantities such as their aggregate reserve holdings and allotment amounts of monetary policy operations is at the core of these relationships. The usefulness of the model is illustrated by applying it to the analysis of three alternative liquidity management strategies of a central bank.

scholarly journals Bank lending in Ukraine and simulation of credit activity by methods of system dynamics

2021 ◽  
Vol 2021 (2) ◽  
pp. 89-109
Author(s):  
Hlushchenko Svitlana ◽  
◽  
Ivakhnenkov Sergiy ◽  
Demkiv Sofiia ◽  
◽  
...  
Keyword(s):  
System Dynamics ◽  
Interest Rates ◽  
Growth Rates ◽  
Commercial Banks ◽  
Banking Sector ◽  
Supply And Demand ◽  
Bank Lending ◽  
Bank Loans ◽  
Short Term ◽  
Loan Portfolio

The trends of bank crediting of businesses and households in Ukraine are determined and credit interrelations between subjects of economy by means of methods of system dynamics simulated. The article shows that by end 2020 the main trends in the Ukrainian banking sector are: 1) increasing the dynamics of return on capital, consistently high interest rates on loans until 2019 and their declining dynamics in 2020; 2) declining trends in the dynamics of the share of loans in the assets of commercial banks and the indicator of the financial depth of lending to the Ukrainian economy; 3) predominance of the share of loans to businesses in comparison with the share of loans to households in the loan banking portfolio; 4) faster growth rates of bank loans to households compared to the growth rates of lending to businesses; 5) in the sectoral context, the largest share in lending to business units is accounted for by trade and in lending to households – by consumer lending; 6) half of the loan portfolio of commercial banks are short-term loans for up to one year; 7) the share of non-performing loans in the loan portfolio remains high; 8) gradual reduction of non-deposit sources among the liabilities of commercial banks and their transition to almost full financing at the expense of customer deposits; 9) increase in the share of short-term and decrease in the share of long-term deposit financing of commercial banks. Based on the methods of system dynamics, the authors created a model that allows to trace the relationship between commercial banks-businesses-households, as well as to calculate the forecast volumes of bank loans in accordance with the demand for loans from businesses and households (weighted by the maximum value credit load) and supply of credit resources by commercial banks. From a practical point of view, determining the characteristic trends of bank lending, modeling the interaction of its main participants and determining the volume of bank loans using system dynamics helps to identify key factors influencing the supply and demand of bank credit resources at the present stage of Ukraine’s development and predict future lending dynamics.

scholarly journals Basis Risk and Net Interest Income of Banks

2016 ◽  
Vol 16 (2) ◽  
pp. 40-59
Author(s):  
Piotr Mielus ◽  
Tomasz Mironczuk ◽  
Anna Zamojska
Keyword(s):  
Interest Rates ◽  
Banking Sector ◽  
Balance Sheet ◽  
Actual Cost ◽  
Short Term ◽  
Basis Risk ◽  
Interest Income ◽  
The Difference

Abstract The results of the banking sector are shaped primarily by commissions and net interest income. Net interest income is determined by the difference between the profitability of bank assets and liabilities. In the case when a different method is used to determine interest for each side of the balance sheet, there occurs a basis risk that may lead to the deterioration in the net interest income of the sector. This is the situation in the Polish banking sector, which is characterized by the presence of variable interest rates for long-term assets and fixed interest rates for short-term liabilities. The study aims to verify the following thesis: in an environment of falling interest rates we can observe the deterioration in net interest income of the banking sector, as a result of the materialization of the basis risk. The authors of the article state that the source of the basis risk is the mismatch between the reference rate used to define the interest flow of loans and the actual cost of financing the balance through term deposits collected from non-financial entities.

scholarly journals Interest rate pass-through estimates from error correction models ECM

2015 ◽  
Vol 5 (1) ◽  
Author(s):  
Le Phan Thi Dieu Thao ◽  
Nguyen Thi Thu Trang
Keyword(s):  
Monetary Policy ◽  
Interest Rates ◽  
Commercial Banks ◽  
Money Market ◽  
Viet Nam ◽  
Short Term ◽  
Adjustment Speed ◽  
Lending Rates ◽  
Pass Through

This paper examines the degree of pass-through and adjustment speed of retail interest rates in response to changes in monetary policy rates in commercial banks of Viet Nam during the period 07/2004 to 06/2014. The results show that the degree of pass-through of retail interest rates is incomplete but high (0.7-0.93). The adjustment speed of money market rates & retail interest rates is relatively slow. It takes from 3 to 6 months for money market rates & retail interest rates to be adjusted to long-term equilibrium, except 1 month VNIBOR. 1 month VNIBOR is sensitive to changes of discount rate & refinancing rate in short-term, contrary to 3 month VNIBOR . The degree of pass-through from market rates to retail interest rates is fairly high in the long-term but low in the short-term. The degree of pass-through is different between various retail interest rates. Specifically, the degree of pass-through of deposit rates is higher than that of lending rates both in the short-term & long-term.

scholarly journals Steadiness of expectation theory measured by swaption curve

2021 ◽  
Vol 3 (2.1) ◽  
pp. 6-26
Author(s):  
Antonio Ruben Santillan Pashma
Keyword(s):  
Interest Rate ◽  
Financial Crisis ◽  
Interest Rates ◽  
Banking Sector ◽  
Fixed Income ◽  
Short Term ◽  
High Volatility ◽  
Expectation Theory ◽  
One Year ◽  
Premium Risk

The financial crisis that broke out in mid-2007 has spread in the existing financial system with great instability favoring the devaluation of currencies with the fall in market interest rates. This has caused potential investors to become more risk-averse and therefore, look for financial products, although lower profitability, also poses less risk. Following this line, it is the Fixed Income assets that have acquired greater prominence in these times of crisis.  This article highlights the strength of the expectation theory in different tranches, using EURIBOR rate to determine implicit forwards, and estimate the price of a one-year swap contract with 3 months of maturity,  and comparing in every moment with the real prices of swap as a benchmark. SWAP is the bigger derivative inside of the group of Fixed Income Assets.  After the quantitative analyst, it has been observed how the theory prevails of sceneries of low volatility but falls on sceneries when the volatility starts to increase. Introduction.  One of the basic assumptions about financial theory is talking about the expectations theory. Since the middle of the eighties, this theory has been used as the unbiased estimator to calculate the swap interest rate in the base of the spot bank interest rate. Aim. Quantitativa analyst of the steadiness of expectations theory in differents economical cycles, using the European Central bank as the source to get hold of the EURIBOR spot rates for 3 months, 6 months, 9 months, and 12months from 2004 to 2016. Results. During the periods before the crisis 2007, the prices of the IRSWAP are almost adjusted between the market and what the financial theory says. The situation starts to change after the financial crisis when the volatility of the market starts to increase due to the instability of the banking sector and traders started with speculations strategies forgetting the aim of hedging, operating, new positions the majority in the short term. Conclusion. Whether for speculative reason or interventions actions of the monetary authority, the theory e “EXPECTATIONS THEORY”, it is not an efficient predictor with out using a premium risk, during the periods of high volatility.

scholarly journals Short Term Liquidity of Foreign Banks in India

2018 ◽  
Vol 7 (2) ◽  
pp. 90-96
Author(s):  
Shradha H. Budhedeo
Keyword(s):  
Financial Crisis ◽  
Banking Sector ◽  
Foreign Banks ◽  
Global Markets ◽  
Short Term ◽  
Liquidity Management ◽  
Considerable Contribution ◽  
Cross Border ◽  
Management Capacity ◽  
Over Time

Foreign banks have been associated with India for almost two centuries now. Yet, there presence has been prominently felt after the recommendations of the Narasimham Committee on financial sector reforms ushered a competitive era that triggered the entry of new private and foreign banks into the country. Foreign banks have always adapted well to the changing financial landscape in India. They have been offering products and services that suit the Indian way of living and enterprise, providing cross-border borrowings, capital and access to global markets. Foreign banks have made considerable contribution to the banking sector over time by bringing capital, technology, efficiency and best global practices to India. The present study examines the foreign banks in India for their liquidity management capacity and liquidity performance over the post financial crisis period. The liquidity of selected Indian foreign banks has been evaluated on the basis of their short-term liquidity ratios. The foreign banks fail to meet the preferred requirements of short-term liquidity parameter for the banking sector. Nonetheless, in relative terms, Citibank shows much better liquidity management in the short-term as compared to HSBC and Standard Chartered banks.

scholarly journals Nominal Interest Rate, Inflation Money and Market Link in Bangladesh: An Econometric Analysis

2020 ◽  
Vol 7 (1) ◽  
pp. 59-68
Author(s):  
Sanjida Akter Chowdhury ◽  
Md. Yousuf ◽  
Md. Nezum Uddin ◽  
Mohammed Jashim Uddin
Keyword(s):  
Interest Rate ◽  
Interest Rates ◽  
Time Series Data ◽  
Money Market ◽  
Nominal Interest Rate ◽  
Series Data ◽  
Short Term ◽  
Nominal Interest Rates ◽  
Fisher Hypothesis

This paper pursues to establish a connection among the nominal interest rate, the money market, and the inflation rate in Bangladesh using monthly time series data from June 2005 to March 2019. Because some data are stationary at the level and others are stationary at the 1st difference, the ARDL model is applicable for checking the link. There is a strong positive short-term and long-term relationship between inflation and nominal interest rates, suggesting that Bangladeshi data support the Fisher hypothesis for that time. For this study, the T bill, the call money rate is used as a measure of the money market. The research indicates that regulators should concentrate on call money rates in short-term and T-bill and call money rates in the long-term to control Bangladesh's nominal interest rate.

scholarly journals Liquidity of commercial banks in Portugal and Spain

2021 ◽  
Vol 10 (1) ◽  
pp. 46-64
Author(s):  
Marco Amaral
Keyword(s):  
Financial Markets ◽  
Commercial Banks ◽  
Banking Sector ◽  
Balance Sheet ◽  
Annual Reports ◽  
Short Term ◽  
Liquidity Management ◽  
Banking Business ◽  
Critical Aspects

Liquidity is very important for the functioning of financial markets, especially for the banking sector, because one of the critical aspects in the banking business is precisely the process of transforming short-term funds and placing them in the medium and long term. This paper aims to comprehensively assess the liquidity positions of Portuguese and Spanish commercial banks through different liquidity ratios for the period from 2002 to 2015 and understand whether the liquidity management strategy differs by bank size. To this end, unconsolidated balance sheet data were used, which were obtained from the banks annual reports. The sample includes a significant part of the Portuguese and Spanish banking sector (not only by the number of banks, but also by the representation in banks total assets). The results obtained show that Spain's banks' liquidity indicator has decreased over the last four years. In contrast, bank liquidity indicator in Portugal varied slightly positively during the period 2002-2006 but decreased sharply between 2010 to 2015. Bank liquidity increased slightly during the period of the financial crisis in both countries, namely between from 2007 to 2009. Finally, it is concluded that smaller banks have less fluctuating liquidity management, i.e., large and medium-sized banks show greater variation in bank liquidity in the period under analysis, i.e., they are less liquid.

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