Sovereigns going bust: Estimating the cost of default
فرمانروایان ورشکستگی: برآورد هزینه های پیش فرض-2019
Article history:Received 6 December 2017Accepted 4 April 2019Available online 15 May 2019JEL classiﬁcation:H63 F34 F41 G01Keywords: Sovereign default Sovereign debt Banking crises Local projectionsInverse propensity score weightingWhat is the cost of sovereign default, and what makes default costly? This paper uses a novel econometric method – combining local projections and propensity score weighting as in Jordà and Taylor (2016) – to study these questions. We ﬁnd that default generates a long-lasting output cost – 2.7% of GDP on impact and 3.7% at peak after ﬁve years – but in the longer term, economic activity recovers. The downturn is characterised by a collapse in investment and gross trade. The cost rises dramatically if the default is followed by a systemic banking crisis – peaking at some 9.5% of GDP – but is attenuated for economies with ﬂoating exchange rates. Our ﬁndings suggest that ﬁnancial autarky, trade frictions and sovereign-banking spillovers play a key role in generating the cost of default.© 2019 Elsevier B.V. All rights reserved.
Keywords: Sovereign default | Sovereign debt | Banking crises | Local projections | Inverse propensity score weighting
Anticipating bank distress in the Eurozone: An Extreme Gradient Boosting approach
پیش بینی بحران مالی بانک ها در منطقه یورو: یک رویکرد تقویت گرادیان شدید-2019
The banking sector plays a special role in the economy and has critical functions which are essential for economic stability. Hence, systemic banking crises disrupt financial markets and hinder global economic growth. In this study, Extreme Gradient Boosting, a state of the art machine learning method, is applied to identify a set of key leading indicators that may help predict and prevent bank failure in the Eurozone banking sector. The crosssectional data used in this study consists of 25 annual financial ratio series for commercial banks in the Eurozone. The sample includes Eurozone listed failed and non-failed banks for the period 2006–2016. A number of early warning systems and leading indicator models have been developed to prevent bank failure. Yet the breadth and depth of the recent financial crisis indicates that these methods must improve if they are to serve as a useful tool for regulators and managers of financial institutions. Our goal is to build a classification model to determine which variables should be monitored to anticipate bank financial distress. A set of key variables are identified to anticipate bank defaults. Identifying leading indicators of bank failure is necessary so that regulators and financial institutions management can take preventive and corrective measures before it is too late.
Keywords: Bank failure prediction | Bank failure prevention | Bank financial distress | Machine learning | Extreme Gradient Boosting |XGBoost
Regulation & oligopoly in banking: The role of banking cost structure
مقررات و الیگپولی در بانکداری: نقش ساختار هزینه بانکی-2019
The post-2008 financial crisis EU banking sector is characterized by recapitalization, a reduction in the number of credit institutions, and cost efficiencies due to the presence of economies of scope. This paper investigates the role of the banking cost structure as a factor influencing the regulatory impact on banking conduct under oligopolistic conditions. Applying the industrial organization approach to banking, commercial banks operate in the context of a two-stage Cournot game with economies of scope and public intervention. This intervention takes the form of minimum solvency requirements imposed by banking authorities. Higher capital provides a buffer against losses on banks’ assets and enhances financial stability. The findings show that stricter prudential regulation reduces loan rates and the interest rate spread. Also, the analysis suggests that banking regulation weakens the effectiveness of monetary policy. Thus, in terms of practical implication, banking supervision strategy should take into consideration the banking cost structure.
Keywords: Capital requirements | Regulation | Monetary policy | Economies of scope
Shadow banking and financial regulation: A small-scale DSGE perspective
بانکداری سایه و مقررات مالی: چشم انداز DSGE در مقیاس کوچک-2019
This paper estimates a small-scale DSGE model of the US economy with interacting tradi- tional and shadow banks. We find that shadow banks amplify the transmission of struc- tural shocks by helping escape constraints from traditional intermediaries. We show how this leakage toward shadow entities reduces the ability of macro-prudential policies target- ing traditional credit to reduce economic volatility. A counterfactual experiment suggests that a countercyclical capital buffer, if applied only to traditional banks, would have in fact amplified the boom-bust cycle associated with the financial crisis of 20 07–20 08. On the other hand, a broader regulation scheme targeting both traditional and shadow credit would have helped stabilize the economy
Keywords: Shadow banking | DSGE models | macro-prudential policy
Competition and stability in modern banking: A post-crisis perspective
رقابت و ثبات در بانکداری مدرن: چشم انداز پس از بحران-2019
Competition has been suppressed for extended periods in banking and when it has been unleashed, financial stability has suffered. This paper elucidates the relationship between competition and stability in modern banking, with particular attention to the impact of digital technologies, and derives the policy consequences for regulation and competition pol
Keywords: Shadow banking | Fintech | Digital technology | Crisis | Run | Regulation
Real estate prices and systemic banking crises
قیمت املاک و مستغلات و بحران های بانکی سیستمی-2019
The collapse of real estate prices has historically jeopardized banking stability and triggered systemic banking crises. This paper studies risk contagion in a banking system in real estate price shock by adopting complex network theory. Modelling the real estate-related asset as a common exposure of banks to the real estate market, we propose a model that incorporates two main risk contagion channels, i.e., the financial network and asset fire sales, and reveal how the real estate price shock is transmitted and propagated across banks. We demonstrate that banking stability is highly sensitive to the real estate price shock. Moreover, due to the particularly low liquidity of the real estate market, the asset fire-sales of real estate assets overwhelms the financial network, playing the dominant role in risk contagion. Our model can be adopted by regulators to conduct stress testing and to forge effective risk management strategies
Keywords: Real estate price | Risk contagion | Financial network | Systemic risk | Banking crisis
Do political factors influence banking crisis?
آیا عوامل سیاسی بر بحران بانکی تأثیر می گذارند؟-2019
This paper investigates the impending political determinants of banking crisis in advanced economies. In particular, we consider the impact of domestic credit growth on the likelihood of banking crisis and analyse possible constraints on the part of the governments in curbing the unsustainable credit growth. The endogeneity corrected results reveal that the household credit growth has greater impact on the likelihood of banking crisis than the enterprise credit growth. The political channel shows that if governments are concerned about domestic approval rates, then there is a higher chance of credit boom, which in turn increases the prospect of banking crisis. Interestingly, the findings reveal that the presence of an independent and well-functioning central bank mitigates the crisis probability and reduces the opportunistic behaviour of governments.
Keywords: Banking crisis | Domestic credit | Institutions | Elections
Performance and productivity in Islamic and conventional banks: Evidence from the global financial crisis
عملکرد و بهره وری در بانک های اسلامی و متعارف: شواهدی از بحران مالی جهانی-2019
We assess the performance and productivity of Islamic and conventional banks using financial ratios, a two- and a four-component meta-frontier Malmquist productivity index (MPI). We focus on the relatively homogenous GCC region over the 2006–2012 period that covers the global financial crisis. We find that Islamic banks exhibit worse cost and profit performance but are on a par with regards to revenue performance compared to the conventional ones. The components of the meta-frontier MPI suggest that the technology of conventional banks improves markedly in years leading to the financial crisis and declines thereafter. Islamic banks show a similar but more muted pattern. By contrast, the pronounced within-Islamic bank group variation in technical efficiency and technology suggests that Islamic banks are quite heterogeneous as a group. Overall, the MPI analysis suggests that the two bank types are more aligned following the global financial crisis. Policy makers should be wary of the important variations within the Islamic banking industry when implementing bank regulations.
Keywords: Performance | Banking sector | Meta-frontier Malmquist productivity analysis | Gulf Cooperation Counci
MARKET CONCENTRATION AND BANK COMPETITION IN EMERGING ASIAN COUNTRIES OVER PRE AND POST THE 2008 GLOBAL FINANCIAL CRISIS
تمرکز بازار و رقابت بانکی در ورود به کشورهای آسیایی بیش از قبل و بحران مالی جهانی سال 2008-2019
This paper examines the relationships between market concentration, bank competition, and efficiency in banking across six emerging Asian countries namely Bangladesh, India, Indonesia, Malaysia, the Philippines and Vietnam over the period 2005 to 2012. The countries selected for this study operate commercial banking activities with a comparatively large number of both publicly listed and private commercial banks providing a broad range of commercial banking services. For example, banks in Bangladesh, India and Vietnam used to be predominantly state-owned. But over the last few decades, governments have been issuing licenses to private owners. The methodological approach taken by our study provides an important and original contribution to the extant literature by testing various hypothesis that investigate the relationship between competition and efficiency across banks from a select group of Asian countries. We find that market concentration has a positive effect whereas competition has a negative effect on the efficiency of banks operating in these countries. This finding conveys a critically important message to the regulators of banks in these countries: there is a trade-off between quantity and quality. Our analyses also reveal that the effect of bank size on efficiency is positive whereas the effect of liquidity risk on efficiency is negative.This again supports the conventional wisdom that large banks are in a position to provide cost efficient services because they have the ability to attain economies of scale and scopes. Here again, the regulators have very important roles to play: while they have to put in place effective mechanism preventing big banks from being an oligarchy; at the same time, they should make sure that banks get liquidity support as funding pressure builds up
Assessing the degree of financial integration in ASEAN—A perspective of banking competitiveness
ارزیابی میزان ادغام مالی در آسه آن — چشم انداز رقابت بانکی-2019
This paper assesses the degree of financial integration of the ASEAN economies by investigating the evolution and convergence properties of banking market competitiveness over the period 1994–2016. Banking market competitiveness is modelled by the Panzar-Rosse (PR) reduced-form revenue model, and the estimated measures of competitiveness (H-statistics) are then used to test for β- and σ-convergence. Greater financial integration is not necessarily competition enhancing, however we find evidence of convergence toward a monopolistic competitive market structure across countries. We find that competitiveness weakened and the speed of convergence slowed following the Asian Financial Crisis and the Global Financial Crisis, but in general the policy of financial integration has been moderately successful.
Keywords: financial integration | Banking competitiveness | Convergence | H-statistics