Liquidity and Equity Short Term Fragility: Stress Tests for the European Banking System

2022 ◽

Author(s):

FAUSTO PACICCO ◽

LUIGI VENA ◽

ANDREA VENEGONI

Keyword(s):

Risk Perception ◽

Banking System ◽

Market Risk ◽

Stress Tests ◽

European Banking Authority ◽

Idiosyncratic Shocks ◽

Systemic Crisis ◽

European Banking

Central bank’s macroprudential supervisory activities have to fulfill three distinct tasks: (i) assessing the banking system’s vulnerability to exogenous adverse turbulence, (ii) evaluating the risk of systemic crisis originating from idiosyncratic shocks, and (iii) measuring financial market’s sensitivity to policy stimuli. Given that macroprudential stress tests are the centerpiece of this policy approach, it is important to establish whether they are up to the task. We study how the 2011–2018 European Banking Authority stress tests affected market risk perception and show that they provided agents with valuable information on the policy stances and the vulnerabilities of the banking system, carrying out the above tasks successfully, especially the second and third tasks.

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The hyperbolic geometry of financial networks

Scientific Reports ◽

10.1038/s41598-021-83328-4 ◽

2021 ◽

Vol 11 (1) ◽

Author(s):

Martin Keller-Ressel ◽

Stephanie Nargang

Keyword(s):

Hyperbolic Geometry ◽

Structural Changes ◽

Banking System ◽

Financial Networks ◽

Stress Tests ◽

Disc Model ◽

European Banking ◽

European Banks ◽

Hyperbolic Embedding ◽

Embedding Methods

AbstractBased on data from the European banking stress tests of 2014, 2016 and the transparency exercise of 2018 we construct networks of European banks and demonstrate that the latent geometry of these financial networks can be well-represented by geometry of negative curvature, i.e., by hyperbolic geometry. Using two different hyperbolic embedding methods, hydra+ and Mercator, this allows us to connect the network structure to the popularity-vs-similarity model of Papdopoulos et al., which is based on the Poincaré disc model of hyperbolic geometry. We show that the latent dimensions of ‘popularity’ and ‘similarity’ in this model are strongly associated to systemic importance and to geographic subdivisions of the banking system, independent of the embedding method that is used. In a longitudinal analysis over the time span from 2014 to 2018 we find that the systemic importance of individual banks has remained rather stable, while the peripheral community structure exhibits more (but still moderate) variability. Based on our analysis we argue that embeddings into hyperbolic geometry can be used to monitor structural change in financial networks and are able to distinguish between changes in systemic relevance and other (peripheral) structural changes.

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European Monetary Measures to Support Economic Recovery

European Journal of Multidisciplinary Studies ◽

10.26417/ejms.v4i2.p101-105 ◽

2017 ◽

Vol 4 (2) ◽

pp. 101

Author(s):

Bogdan Munteanu

Keyword(s):

Economic Growth ◽

Cost Benefit Analysis ◽

Banking System ◽

Cost Benefit ◽

Economic Recovery ◽

Fiscal Policies ◽

The European Union ◽

Benefit Analysis ◽

Stress Tests ◽

European Banking

The present article aims to look at the current monetary measures deployed by ECB to address the economic context of below expectations economic growth and inflation, taking into account the expression of monetary policy via the Expanded Asset Purchase Programme. This tool is used to push financial liquidity into the economies of the European Union, in a banking system affected by the crisis and which has been shown to be still at risk by the latest stress tests conducted by the European Banking Authority. The article points out why monetary measures are important to support the economic recovery in Europe, in an interventional context of monetary and fiscal policies of governing authorities, appealing to economic models to explain how the policies contribute to economic growth and development. The methodology used by the article is economic analysis and rationale, cost-benefit analysis, statistics of money market and banking industry indicators, etc. The conclusion emerging from this article is that the Asset Purchase Programme of ECB led in a certain degree to an improvement in the macro-economic environment on yields and on its transmission channels into the financial system and into economies.

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Systemic Risk in the European Banking System

SSRN Electronic Journal ◽

10.2139/ssrn.1102001 ◽

2008 ◽

Author(s):

Andrea Cipollini

Keyword(s):

Systemic Risk ◽

Banking System ◽

European Banking

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Profiles of Targets and Acquirers: Empirical Evidence from European Banking System - Case of Cross-Border M&A Strategies by Line of Activities

SSRN Electronic Journal ◽

10.2139/ssrn.1584227 ◽

2010 ◽

Author(s):

Mehrez Ben Slama ◽

Dhafer Saidane ◽

Hassouna Fedhila

Keyword(s):

Empirical Evidence ◽

Banking System ◽

Cross Border ◽

European Banking

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Same Story, Different Place?

10.1093/oso/9780198815815.003.0007 ◽

2018 ◽

Cited By ~ 1

Author(s):

Viral V. Acharya ◽

Tim Eisert ◽

Christian Eufinger ◽

Christian Hirsch

Keyword(s):

Banking Sector ◽

Debt Crisis ◽

Banking System ◽

Policy Implications ◽

Balance Sheets ◽

System P ◽

Loan Supply ◽

European Banking ◽

European Debt Crisis

This chapter compares the recapitalizations of the Japanese banking sector in the 1990s with those in the ongoing European debt crisis. The analysis points to four main policy implications. First, recapitalizing banks by insuring or purchasing troubled assets alone is not likely to solve the problem of banks’ weak capitalization, as this measure is not able to adjust the extent of the recapitalization to the banks’ specific needs. Second, the amount of the recapitalization should be based on actual capital shortages and not risk-weighted assets to avoid banks decreasing their loan supply. Third, banks should face restrictions regarding the amount of dividends they are allowed to pay out. Finally, banks must be induced to clean up their balance sheets and reduce the amount of bad (non-performing) loans to rebuild confidence in the European banking system.

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“The Crooked Smile of TCR”: Banks’ Solvency and Restructuring Costs in the European Banking Industry

SAGE Open ◽

10.1177/21582440211045962 ◽

2021 ◽

Vol 11 (3) ◽

pp. 215824402110459

Author(s):

Małgorzata Iwanicz-Drozdowska ◽

Krzysztof Jackowicz ◽

Maciej Karczmarczyk

Keyword(s):

Probability Function ◽

Bank Failure ◽

Capital Adequacy ◽

Special Importance ◽

Stress Tests ◽

Distribution Probability ◽

Total Capital ◽

European Banking ◽

European Banks ◽

Bank Restructuring

In this study, we analyze the probability of bank failure, the expected losses, and the costs of bank restructuring with the application of a lognormal distribution probability function for three categories of European banks, that is, small, medium, and large, over the post-crisis period from 2012 to 2016. Our goal was to determine whether the total capital ratio (TCR) properly reflects banks’ solvency under stress conditions. We identified a phenomenon that one can call the “crooked smile of TCR”. Medium-sized banks with relatively high TCRs performed poorly in stress tests; however, the probability of bank failure increases slightly with the size of the bank, while the TCR decreases. We claim that the focus on capital adequacy measures is not sufficient to achieve the goal of improving banks’ stability and reducing their restructuring costs. Our results are of special importance for medium-sized banks, as these banks are not regularly subjected to publicly available stress tests.

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Does the Interest Rate Form Business Cycle?

International Journal of Accounting & Finance Review ◽

10.46281/ijafr.v4i1.281 ◽

2019 ◽

Vol 4 (1) ◽

pp. 29-34

Author(s):

Bijan Bidabad ◽

Abul Hassan

Keyword(s):

Interest Rate ◽

Business Cycle ◽

Interest Rates ◽

Banking System ◽

Real Economy ◽

Short Term ◽

The Usa ◽

Rate Form ◽

The Interest Rate

Dynamic structural behavior of depositor, bank and borrower and the role of banks in forming business cycle are investigated. We test the hypothesis that does banks behavior make oscillations in the economy through the interest rate. By dichotomizing banking activities into two markets of deposit and loan, we show that these two markets have non-synchronized structures, and this is why the money sector fluctuation starts. As a result, the fluctuation is transmitted to the real economy through saving and investment functions. Empirical results assert that in the USA, the banking system creates fluctuations in the money sector and real economy as well through short-term interest rates

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