Consumption Response to Credit Expansions: Evidence from Experimental Assignment of 45,307 Credit Lines

In a field experiment that constructs a randomized credit limit shock, participants borrow to spend 11 cents on the dollar in the first quarter and 28 cents by the third year. Effects extend to those far from the limit, those who had the new limits as available credit, and those with a liquid asset buffer. In the short-run, flexible and installment contracts are used in tandem, with unconstrained using installments more. Long-run borrowing is predominantly using installments. Near limits, participants borrow when credit expands but save out of constraints when limits are tight. Findings support a buffer-stock interpretation emphasizing precautionary saving. (JEL C93, E21, G21, G51, O12, O16)

Energy financing in COVID-19: how public supports can benefit?

PurposeThe study aims to empirically estimate the role of public supports for energy efficiency financing and presents the way forward to mitigate the energy financing barriers that incurred during the COVID-19 crisis.Design/methodology/approachUsing the G7 countries data, the study estimated the nexus between the constructs. Generalized method of moments (GMM) and conventional increasing-smoothing asymptotic of GMM are applied to justify the study findings. Wald econometric technique is also used to robust the results.FindingsThe study findings reported a consistent role of public support on energy efficiency financing indicators, during the COVID-19 crisis period. G7 countries raised funds around 17% through public supports for energy efficiency financing, and it raised 4% of per unit energy usage to GDP, accelerated 16% energy efficiency and 24% output of renewable energy sources, during COVID-19. By this, study findings warrant a maximum support from public offices, energy ministries and other allied departments for energy efficiency optimization.Practical implicationsThe study presents multiple policy implications to enhance energy efficiency through different alternative sources, such as, on-bill financing, direct energy efficiency grant, guaranteed financial contracts for energy efficiency and energy efficiency credit lines. If suggested policy recommendations are applied effectively, this holds the potential to diminish the influence of the COVID-19 crisis and can probably uplift the energy efficiency financing during structural crisis.Originality/valueThe originality of the recent study exists in a novel framework of study topicality. Despite growing literature, the empirical discussion in the field of energy efficiency financing and COVID-19 is still shattered and less studied, which is contributed by this study.

Domestic Lending and the Pandemic: How Does Banks' Exposure to Covid-19 Abroad Affect Their Lending in the United States?

Shortly after the onset of the pandemic, U.S. banks cut their term lending to businesses–but little is known about how much, and why, banks' choice to ration credit contributed to this contraction. Afforded by a unique combination of several highly granular bank regulatory datasets, we identify the role of banks' exposure to Covid-related restrictions abroad – a balance sheet "shock" that affects only banks' credit supply, but not their US borrowers' demand for loans. We find that US banks with higher foreign Covid exposure cut their lending to US firms, and tightened terms on such loans, significantly more. Banks having become less risk tolerant, as well as foreign borrowers defaulting and drawing down on their cross-border credit lines, were potent mechanisms through which foreign Covid exposure reduced banks' domestic lending.

Economic safety of Ukrainian railways: ways to exit the crisis.

The author has emphasized that the quarantine and social distancing measures needed to reduce the spread of the pandemic have a particularly serious impact on small and medium-sized enterprises due to a sharp decline in demand for services, with the exception of food retail. Transport is no exception and also suffers significant losses due to reduced traffic. The economic activity and the level of GDP of Ukraine during the last years are analyzed. The policy measures implemented during the quarantine period, which were designed to provide targeted financial support to small and medium enterprises, are outlined. The current crisis requires comprehensive support measures, including not only support through the opening of credit lines and the provision of credit guarantees, but also support measures through fiscal and social policy measures. In addition, intensive support will be needed in the medium and long term, especially to help businesses recover quickly from the crisis by supporting digitalisation, more flexible regulation and improved access to finance. The strengths and weaknesses of railway transport are highlighted, its capabilities and advantages are analyzed, especially in comparison with other types of transport, as well as the threats of internal and external influences. The contribution of JSC Ukrzaliznytsia in overcoming the impact of the COVID-19 pandemic in 2020 is analyzed. It is emphasized that the railway is a powerful taxpayer Measures to overcome the crisis in railway transport are proposed, including, in particular, the separation of freight and passenger traffic, refusal to transport privileged categories of citizens under the current scheme of financing these transport by local authorities, the introduction of public-private partnership on concession.

Liquidity Provision and Co-insurance in Bank Syndicates

We study the capacity of the banking system to provide liquidity to the corporate sector in times of stress and how changes in this capacity affect corporate liquidity management. We show that the contractual arrangements among banks in loan syndicates co-insure liquidity risks of credit line drawdowns and generate a network of interbank exposures. We develop a simple model and simulate the liquidity and insurance capacity of the banking network. We find that the liquidity capacity of large banks has significantly increased following the introduction of liquidity regulation, and that the liquidity co-insurance function in loan syndicates is economically important. We also find that borrowers with higher reliance on credit lines in their liquidity management have become more likely to obtain credit lines from syndicates with higher liquidity. The assortative matching on liquidity characteristics has strengthened the role of banks as liquidity providers to the corporate sector.

Sustainability Strategies of Equipment Introduction and Overcapacity Risk Sharing in Mask Emergency Supply Chains during Pandemics

The sustainability of the mask emergency supply chain faces two problems during the current COVID-19 pandemic. First, mask manufacturers are mainly small and mid-size enterprises, resulting in a lack of funds and credit lines for the introduction of equipment. Second, the periodicity and uncertainty of pandemics create overcapacity risk for the mask emergency supply chain. To solve these problems, this study incorporates financial leasing institutions and the government into the mask emergency supply chain. Based on a questionnaire survey of practitioners of financial leasing institutions, the relationship between mask manufacturers, financial leasing institutions, and the government in the mask supply chain is analyzed through a game model, and the behavior of mask manufacturers to reduce the scale of mask production after the occurrence of overcapacity is investigated using the cusp catastrophe theory. We find that in the case of masks’ overcapacity, mask manufacturers tend to continue production. Finally, we propose that financial leasing institutions should lease mask production equipment to mask manufacturers under the guarantee of the government and develop a mechanism for the three parties to jointly share the risk of mask overcapacity, aiming at ensuring the sustainable manufacturing of masks during the pandemic.

Financial Analysis: A Study on the Liquidity and Indebtedness of Brazilian Companies Listed on the Bovespa Index in the Period of Social Isolation Caused by Covid-19

The present work aimed to carry out a study on the variation of liquidity and indebtedness of companies listed on the Bovespa Index of B3, for the four quarters of 2020, a period in which the world economy went through instabilities and imbalances due to the pandemic of Covid-19. Financial management is essential for companies, as without it managers can make inefficient decisions, which can negatively impact the company and its finances. The absence of good financial management can cause negative impacts on the company, especially in times of crisis, such as the period of the first year of the COVID-19 pandemic. Therefore, for a business to have good results, it is necessary to create strategies to manage the company's finances, including periodic liquidity and indebtedness analysis. Thus, the Current Liquidity Ratio (ILC) and the Cash Ratio(CI) were used to determine the liquidity of companies and their transformations for the period analyzed. For indebtedness, we sought to analyze the Liabilities/Assets Index and the Third-Party Capital/Equity Index. Data were collected from the Standardized Financial Statements (DFP) and Quarterly Information (ITR) available on the B3 page. In the analysis of this work, companies from the financial sector were excluded due to the incompatibility of accounting standards and the methodology addressed in the work. It was verified in the results that, on average, companies underwent a substantial increase in liquidity in 2020, mainly in the second quarter, in which there was an average increase, among the companies analyzed, of 33.18% in the Cash ratio. The Industrial Goods, Oil, Gas and Biofuels and Public Utilities sector had the greatest increases in liquidity in the period. In terms of indebtedness, it could be seen that there was an increase in the participation of third-party capital, but less significant than the increase in liquidity of companies. This suggests that liquidity was financed by reallocation of company assets and policies aimed at exchanging the companies' current liabilities for non-current liabilities. It is concluded that in periods of uncertainty, such as the COVID-19 Pandemic, one of the priorities of companies is in fact to strengthen cash through asset reallocation, liability refinancing and contracting of credit lines.

How Dynamic is Bank Liquidity, Including when the COVID-19 Pandemic First Set In?

Banks need sufficient liquidity—cash and other assets that may be easily and immediately converted into cash—to meet their financial obligations, such as when households withdraw deposits or businesses tap credit lines. One key takeaway from the Global Financial Crisis of 2007–09 was that continuity of bank intermediation is particularly important in times of stress to limit pressure on the financial system, and that banks need to consistently maintain sufficient liquidity to achieve that outcome.

How inefficient is an inefficient credit process? An analysis of the Italian banking system

PurposeThe paper aims to disentangle the physiological credit risk from the credit risk coming from the inefficient screening and monitoring management process. The analysis is conducted on a sample of 338 Italian banks–56 joint-stock banks (SpA), 23 cooperative banks (Popolari) and 259 mutual banks (BCCs)–over the time period 2006–2017.Design/methodology/approachThe authors use the maximum likelihood method to estimate the efficient frontier, as a set of best management credit practices, which minimises the credit risk defined on the basis of the level of loans granted, the technical structure of the loan portfolio (such as credit lines, mortgages, consumer loans and other technical loan categories) and the interest rate charges.FindingsThe empirical results show that the increase in non-performing loans (NPLs) is related both to the severe and protracted recession in Italy, which significantly reduced borrowers' capacity to service their debt, and to other factors, such as banks' lending monitoring policies with limited capacity to work-out defaulted loans.Originality/valueThe authors propose a new approach to the study of the performance of the credit process. With the stochastic frontier, the physiological credit risk, assumed by the bank according to its lending activity and management choices, is separated from the credit risk resulting from an inefficient management of the screening and monitoring process. In addition, the authors analyse the determinants of the excess of NPLs. This aspect is considered particularly original because the scientific contributions which consider the causes of NPLs have largely focused on the level of NPLs not considering the physiological part, linked to the structure of the bank's loan portfolio and its operational strategy and therefore not compressible and in any case not attributable to mismanagement or moral hazard.