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Business and Economics > Investments: Stocks

You are looking at 1 - 10 of 14 items for :

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Cover IMF Working Papers
Handle with Care: Regulatory Easing in Times of COVID-19
Mr. Fabian Valencia
,
Mr. Richard Varghese
,
Weijia Yao
, and
Juan Yepez
The policy response to the COVID-19 shock included regulatory easing across many jurisdictions to facilitate the flow of credit to the economy and mitigate a further ampli-fication of the shock through tighter financial conditions. Using an intraday event study,this paper examines how stock prices—a key driver in financial conditions—reacted to regulatory easing announcements in a sample of 18 advanced economies and 8 emerging markets. The paper finds that overall, regulatory easing announcements contributed to looser financial conditions, but effects varied across sectors and tools. Financial regulatory easing led to lower valuations for financial sector stocks, and higher valuations for non-financial sector stocks, particularly for industries that are more dependent on bank financing. Furthermore, valuations declined and financial conditions tightened following announcements related to easier bank capital regulation while equity valuation rose and financial conditions loosened after those about liquidity regulation. Effects from non-regulatory financial measures appear to be generally more muted.
Keywords:
Stock prices; policy announcements; financial conditions; capital; liquidity; COVID-19.; WP; liquidity regulation easing; regulation announcement; announcement dummy; equity price; market reaction
Cover IMF Staff Country Reports
Switzerland: Financial Sector Assessment Program; Technical Note-Insurance Stress Testing
International Monetary Fund. Monetary and Capital Markets Department
Financial Sector Assessment Program; Technical Note-Insurance Stress Testing
Keywords:
ISCR; CR; investment; sovereign bond; capital; holding; bond investment; sovereign bond exposure; coverage ratio; investment holding; investment yield; low-yield environment; Insurance companies; Stress testing; Sovereign bonds; Insurance; Stocks; Global
Cover IMF Working Papers
Whose Credit Line is it Anyway: An Update on Banks' Implicit Subsidies
Tryggvi Gudmundsson
The post-crisis financial sector framework reform remains incomplete. While capital and liquidity requirements have been strengthened, doubts remain over other aspects, including the fact that expectations of government support for systemically-important banks (SIBs) remain intact. In this paper, we use a jump diffusion option-pricing approach to provide estimates of implicit subsidies gained by these banks due to the expectation of protection to creditors provided by governments. While these subsidies have declined in the post-crisis era as volatility has declined and capital levels have increased, they remain non-trivial. Even conservative parameterizations of default and loss probabilities lead to macroeconomically significant figures.
Keywords:
WP; fair value; Implicit subsidies; systemically-important banks; capital regulation; bank assets; asset price assumption; asset volatility; recovery rate; bank's assets; market value of assets; value destruction; Asset prices; Stocks; Asset valuation; Global systemically important banks; Global
Cover IMF Working Papers
Bank Profitability and Risk-Taking
Natalya Martynova
,
Mr. Lev Ratnovski
, and
Mr. Razvan Vlahu
Traditional theory suggests that more profitable banks should have lower risk-taking incentives. Then why did many profitable banks choose to invest in untested financial instruments before the crisis, realizing significant losses? We attempt to reconcile theory and evidence. In our setup, banks are endowed with a fixed core business. They take risk by levering up to engage in risky ‘side activities’(such as market-based investments) alongside the core business. A more profitable core business allows a bank to borrow more and take side risks on a larger scale, offsetting lower incentives to take risk of given size. Consequently, more profitable banks may have higher risk-taking incentives. The framework is consistent with cross-sectional patterns of bank risk-taking in the run up to the recent financial crisis.
Keywords:
WP; interest rate; monetary policy; Banks; Risk-Taking; Bank Capital; Repo Markets; Crises; market-based investment; risky investment; investment X; side investment; project investment; Bank soundness; Accommodative monetary policy; Investment banking; Stocks; Global
Cover IMF Working Papers
Bank Behavior in Response to Basel Iii: A Cross-Country Analysis
Mr. Thomas F. Cosimano
and
Ms. Dalia S Hakura
This paper investigates the impact of the new capital requirements introduced under the Basel III framework on bank lending rates and loan growth. Higher capital requirements, by raising banks’ marginal cost of funding, lead to higher lending rates. The data presented in the paper suggest that large banks would on average need to increase their equity-to-asset ratio by 1.3 percentage points under the Basel III framework. GMM estimations indicate that this would lead large banks to increase their lending rates by 16 basis points, causing loan growth to decline by 1.3 percent in the long run. The results also suggest that banks’ responses to the new regulations will vary considerably from one advanced economy to another (e.g. a relatively large impact on loan growth in Japan and Denmark and a relatively lower impact in the U.S.) depending on cross-country variations in banks’ net cost of raising equity and the elasticity of loan demand with respect to changes in loan rates.
Keywords:
WP; loan rate; loan demand; financial crisis; largest bank; Commercial banks; capital constraints; equity-to-asset ratio; expense ratio; bank capital; bank equity; Loans; Stocks; Demand elasticity; Basel III; Global
Cover IMF Working Papers
Macrofinancial Linkages of the Strategic Asset Allocation of Commodity-Based Sovereign Wealth Funds
Aaron Howard Clifford Brown
,
Mr. Michael G. Papaioannou
, and
Iva Petrova
This paper analyses the links between the investment strategies of a commodity-based SWF and the macroeconomic framework of the owner country. We examine some basic macrofinancial linkages of an SWF's strategic asset allocation (SAA) strategies with regard to the government budget, monetary policy, and exchange rate movements. Based on a simple Markowitz-model framework, which integrates the specific objectives and constraints facing an SWF and the country's specific characteristics and macroeconomic vulnerabilities (especially in relation to commodity prices and prospective defined liabilities), we derive an SAA. The asset-liability methodology that is applied in the selection of an SWF SAA also allows assessing whether (i) the SAA adequately takes into account the country-specific risks and vulnerabilities, and (ii) its objectives and macrofinancial constraints are consistent. Some analytical and practical issues in determining an SAA model are also discussed, along with key effects of a financial crisis.
Keywords:
WP; expected return; exchange rate; financial asset; Sovereign Wealth Funds; Strategic Asset Allocation; Macrofinancial Linkages; asset class; stabilization SWF; revenue gap; SWF asset portfolio; SWF asset performance; SWF asset investment; asset-liability management framework; SWF resource; commodity price; portfolio return; SWF assets; asset class correlation; Sovereign bonds; Currencies; Oil prices; Stocks; Exchange rates; Global
Cover IMF Working Papers
French Banks Amid the Global Financial Crisis
Ms. Yingbin Xiao
This paper runs the gamut of qualitative and quantitative analyses to examine the performance of French banks during 2006-2008 and the financial support measures taken by the French government. French banks were not immune but proved relatively resilient to the global financial crisis reflecting their business and supervision features. An event study of the impact of government measures on CDS, debt, and equity markets points to the reduction of credit risk and financing cost as well as the redistribution of resources. With the crisis still unfolding, uncertainties remain and challenges lie ahead, calling for continued vigilance and enhanced risk management.
Keywords:
WP; French bank; bank assets; credit risk; State capital injection
Cover IMF Working Papers
Why Are Canadian Banks More Resilient?
Rocco Huang
and
Mr. Lev Ratnovski
This paper explores factors behind Canadian banks' relative resilience in the ongoing credit turmoil. We identify two main causes: a higher share of depository funding (vs. wholesale funding) in liabilities, and a number of regulatory and structural factors in the Canadian market that reduced banks' incentives to take excessive risks. The robust predictive power of the depository funding ratio is confirmed in a multivariate analysis of the performance of 72 largest commercial banks in OECD countries during the turmoil.
Keywords:
WP; bank; capital; price; funding; Banking Crisis; Financial Stability; Early Warning System; Canada; bank capital regulation; A. bank Fundamentals; capital injection; bank performance; balance sheet liquidity; Canadian bank; Financial statements; Stocks; Liquidity; Capital adequacy requirements; Business enterprises; Australia and New Zealand
Cover IMF Staff Position Notes
The Economics of Bank Restructuring: Understanding the Options
Augustin Landier
and
Mr. Kenichi Ueda
Based on a simple framework, this note clarifies the economics behind bank restructuring and evaluates various restructuring options for systemically important banks. The note assumes that the government aims to reduce the probability of a bank’s default and keep the burden on taxpayers at a minimum. The note also acknowledges that the design of any restructuring needs to take into consideration the payoffs and incentives for the various key stakeholders (i.e., shareholders, debt holders, and government).
Keywords:
SPN; debt holder; default probability; asset sale; asset value; bank assets; preferred shares; equity holder; debt-for-equity swap; asset quality; asset guarantee; Stocks; Asset valuation; Asset management; Distressed assets; Securities
Cover IMF Staff Country Reports
Switzerland: Selected Issues
International Monetary Fund
This paper reviews the trade-offs in Switzerland, focusing on challenges for fiscal policy coordination. It reviews the benefits and costs of a highly decentralized government, describes the Swiss institutional architecture, and analyzes Switzerland’s fiscal performance. It also discusses the specific policy challenges related to population aging, reviews the Swiss National Bank works on government financial assets and liabilities, describes the Swiss, Dutch, and the U.K. pension systems, respectively, on the regulation and supervision of the occupational pension pillar, recent reforms, and policy implications.
Keywords:
ISCR; CR; balance sheet; public sector balance sheet; balance sheet data; government; proceeds; General government financial assets; government level; output gap; funding ratio; equity holding; General government expenditure; public goods; Pension spending; Pensions; Fiscal stance; Global; Baltics