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Business and Economics > Banks and Banking

You are looking at 1 - 10 of 27 items for :

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Cover IMF Working Papers
Do Banks Price Environmental Transition Risks? Evidence from a Quasi-Natural Experiment in a Chinese Province
Bihong Huang
,
Maria Teresa Punzi
, and
Yu Wu
This paper assesses the financial risks arising from transition toward a low-emission economy. The environmental DSGE model shows tightening environmental regulation impairs firms’ balance sheets, and consequently threatens financial stability in the short term. The empirical analysis indicates that following the implmentation of Clean Air Action Plan, the default rates of high-polluting firms in a Chinese province rose by around 80 percent. Joint equity commercial banks with higher level of independence were able to appropriately price in their exposure to transition risks, while the Big Five commercial banks failed to factor in such risks.
Keywords:
E-DSGE Model; Financial stability; Clean Air Action Plan; transition risk; baseline analysis; default rate; data source; capital market department; Loans; Environmental policy; Commercial banks; Self-employment; Global
Cover IMF Working Papers
Financial Crises, Investment Slumps, and Slow Recoveries
Ms. Valerie Cerra
,
Mai Hakamada
, and
Mr. Ruy Lama
One of the most puzzling facts in the wake of the Global Financial Crisis (GFC) is that output across advanced and emerging economies recovered at a much slower rate than anticipated by most forecasting agencies. This paper delves into the mechanics behind the observed slow recovery and the associated permanent output losses in the aftermath of the crisis, with a particular focus on the role played by financial frictions and investment dynamics. The paper provides two main contributions. First, we empirically document that lower investment during financial crises is the key factor leading to permanent loss of output and total factor productivity (TFP) in the wake of a crisis. Second, we develop a DSGE model with financial frictions and capital-embodied technological change capable of reproducing the empirical facts. We also evaluate the role of financial policies in stabilizing output and TFP in response to disruptions in financial markets.
Keywords:
Medium-term TFP loss; impulse response; investment dynamics; hysteresis effect; aftermath of a financial crises; Total factor productivity; Global financial crisis of 2008-2009; Banking crises; Self-employment; Global
Cover IMF Working Papers
Shocks Matter: Managing Capital Flows with Multiple Instruments in Emerging Economies
Mr. Ruy Lama
and
Juan Pablo Medina
We study the optimal management of capital flows in a small open economy model with financial frictions and multiple policy instruments. The paper reports two main findings. First, both foreign exchange intervention (FXI) and macroprudential polices are tools complementary to the monetary policy rate that can largely reduce inflation and output volatility in a scenario of capital outflows. Second, the optimal policy mix depends on the underlying shock driving capital flows. FXI takes the leading role in response to foreign interest rate shocks, while macroprudential policy becomes the prominent tool for domestic risk shocks. These results highlight the importance of calibrating the use of multiple instruments according to the underlying shocks that induce shifts in capital flows.
Keywords:
WP; FX intervention
Cover IMF Working Papers
Informality, Frictions, and Macroprudential Policy
Moez Ben Hassine
and
Mr. Nooman Rebei
We analyze the effects of macroprudential policies through the lens of an estimated dynamic stochastic general equilibrium (DSGE) model tailored to developing markets. In particular, we explicitly introduce informality in the labor and goods markets within a small open economy embedding financial frictions, nominal and real rigidities, labor search and matching, and an explicit banking sector. We use the estimated version of the model to run welfare analysis under optimized monetary and macroprudential rules. Results show that although informality reduces the efficiency of macroprudential policies following a convex fashion, combining the latter with an inflation targeting objective could be beneficial.
Keywords:
WP; interest rate; monetary policy; welfare gain; physical capital; inflation rate; adjustment cost; open economy; production function; interest rate rule; marginal utility; inflation targeting policy; nominal exchange rate; demand shock; Macroprudential policy; Self-employment; Consumption; Housing
Cover IMF Working Papers
Sovereigns and Financial Intermediaries Spillovers
Mr. Hamid R Tabarraei
,
Abdelaziz Rouabah
, and
Olivier Pierrard
We examine the spillover effects between sovereigns and banks in a model with a heterogeneous banking system. An increase in sovereign’s default risk affects financial intermediaries through two channels in this model. First, banks’ funding costs might increase, inducing higher interest rates on loans and bonds and a cut back in these assets. Second, financial regulator’s risk-weighted asset framework would assign higher weights to lower quality assets, implying a portfolio rebalancing and more deleveraging. While capital adequacy requirements weaken the impact of shocks emerging from the real economy, they amplify the effect of shocks on banks’ balance sheets.
Keywords:
WP; interest rate; deposit bank; Sovereign risk; Contagion; hiterbank market; lending bank; wholesale bank; leverage ratio; sovereigns-banks nexus; balance sheet identity; bank capital; banking sector; Bank credit; Sovereign bonds; Self-employment; Loans; Bank deposits; Northern Europe; Southern Europe; Europe; Global
Cover IMF Working Papers
Cross-Border Credit Intermediation and Domestic Liquidity Provision in a Small Open Economy
Mr. Thorvardur Tjoervi Olafsson
This paper develops a small open economy model where global and domestic liquidity is intermediated to the corporate sector through two financial processes. Investment banks intermediate cross-border credit through interlinked debt contracts to entrepreneurs and commercial banks intermediate domestic savings to liquidity constrained final good producers. Both processes are needed to facilitate development of key production inputs. The model captures procyclical investment bank leverage dynamics, global liquidity spillovers, domestic money market pressures, and macrofinancial linkages through which shocks propagate across the two processes, affecting spreads and balance sheets, as well as the real economy through investment and working capital channels.
Keywords:
WP; interest rate; money market; central bank; financial frictions; cross-border banking flows; macrofinancial linkages; financial intermediation; working capital; credit contracts; investment banking; credit market; liquidity shock; depreciation rate; funding rate reaction; capital producer; idiosyncratic productivity; cost of funds; commercial bank funding; monopolistic investment banks; Investment banking; Domestic credit; Credit; Commercial banks; Self-employment; Global; East Asia
Cover IMF Working Papers
Banks, Firms, and Jobs
Fabio Berton
,
Sauro Mocetti
,
Mr. Andrea F Presbitero
, and
Matteo Richiardi
We analyze the employment effects of financial shocks using a rich data set of job contracts, matched with the universe of firms and their lending banks in one Italian region. To isolate the effect of the financial shock we construct a firm-specific time-varying measure of credit supply. The contraction in credit supply explains one fourth of the reduction in employment. This result is concentrated in more levered and less productive firms. Also, the relatively less educated and less skilled workers with temporary contracts are the most affected. Our results are consistent with the cleansing role of financial shocks.
Keywords:
WP; firm level; service sector; credit crunch; dependent variable; Bank lending channel; Job contracts; Employment; Financing constraints; Cleansing effect; employment decision; quarter FE; financing constraint; employment agency; firm FE; firm cluster; credit supply index; Credit; Bank credit; Loans; Labor force; Asia and Pacific; Global
Cover IMF Staff Country Reports
Uruguay: Selected Issues
International Monetary Fund. Western Hemisphere Dept.
This paper examines the dimensions in which Uruguay’s financial development is lagging, and the benefits that might accrue if obstacles to development in these areas were removed. The analysis focuses on the frictions affecting firms’ access to credit, corporate credit deepening, and the efficiency of financial intermediation in Uruguay, and quantifies the potential economic benefits of relaxing these constraints, with implications for firms and households alike. The paper also lays out the basic premises of the model, together with some facts to illustrate different elements of it. The paper presents the results of the calibration and comparative statics exercise. The last section concludes with a discussion of measures that have been taken by the Uruguayan authorities recently, which may alleviate some of the constraints emphasized in the model. The challenge is to implement these measures in a way that maximizes their effectiveness. This may require communication campaigns targeting the youth, elderly and low-income segments of the population, to ensure the widest reach, particularly outside Montevideo.
Keywords:
ISCR; CR; Uruguay; lending; diversification; dollar; participation cost; monitoring cost; intermediation cost; export market diversification; increase credit participation; access cost; Credit; Bank credit; Collateral; Loans; Exports; Global; Australia and New Zealand; North America
Cover IMF Working Papers
Optimal Prudential Regulation of Banks and the Political Economy of Supervision
Mr. Thierry Tressel
and
Mr. Thierry Verdier
We consider a moral hazard economy in banks and production to study how incentives for risk taking are affected by the quality of supervision. We show that low interest rates may generate excessive risk taking. Because of a pecuniary externality, the market equilibrium may not be optimal and there is a need for prudential regulation. We show that the optimal capital ratio depends on the macro-financial cycle, and that, in presence of production externalities, it should be complemented by a constraint on asset allocation. We show that the political process tends to exacerbate excessive risk taking and credit cycles.
Keywords:
WP; capital adequacy ratio; expected return; Banking Regulation; Regulatory Forbearance; Political Economy; bank capital; adequacy rule; banking supervision; bank audit; incentive constraint; bank supervisor; Capital adequacy requirements; Bank supervision; Self-employment; Auditing; Global
Cover IMF Working Papers
Monetary and Macroprudential Policies to Manage Capital Flows
Juan Pablo Medina Guzman
and
Mr. Jorge Roldos
We study interactions between monetary and macroprudential policies in a model with nominal and financial frictions. The latter derive from a financial sector that provides credit and liquidity services that lead to a financial accelerator-cum-fire-sales amplification mechanism. In response to fluctuations in world interest rates, inflation targeting dominates standard Taylor rules, but leads to increased volatility in credit and asset prices. The use of a countercyclical macroprudential instrument in addition to the policy rate improves welfare and has important implications for the conduct of monetary policy. “Leaning against the wind” or augmenting a standard Taylor rule with an argument on credit growth may not be an effective policy response.
Keywords:
WP; Capital Inflows; Monetary Policy; Macroprudential Policy; Welfare Analysis; lending intermediary; monetary policy rate; liquidity intermediary; defaulted capital; recovery rate; default rate; liquidity service; lending interest rate; fire-sale price; Reserve requirements; Self-employment; Financial frictions; Central bank policy rate; Inflation targeting