Publications published in 2020
- 18 December 2020
- RISK DASHBOARDAnnexes
- 18 December 2020
- RISK DASHBOARD
- 18 December 2020
- AMENDMENT
- 18 December 2020
- AMENDMENT
- 1 December 2020
- WORKING PAPER SERIES - No. 113Details
- Abstract
- I estimate the comparative causal effects of monetary policy \leaning against the wind" (LAW) and macroprudential policy on bank-level lending and leverage by drawing on a single natural experiment. In 1920, when U.S. monetary policy was still decentralized, four Federal Reserve Banks implemented a conventional rate hike to address financial stability concerns. Another four Reserve Banks resorted to macroprudential policy with the same goal. Using sharp geographic regression discontinuities, I exploit the resulting policy borders with the remaining four Federal Reserve districts which did not change policy stance. Macroprudential policy caused both bank-level lending and leverage to fall significantly (by 11%-14%), whereas LAW had only weak and, in some areas, even perverse effects on these bank-level outcomes. I show that the macroprudential tool reined in over-extended banks more effectively than LAW because it allowed Federal Reserve Banks to use price discrimination when lending to highly leveraged counterparties. The perverse effects of the rate hike in some areas ensued because LAW lifted a pre-existing credit supply friction by incentivizing regulatory arbitrage. My results highlight the importance of context, design and financial infrastructure for the effectiveness of financial stability policies.
- JEL Code
- E44 : Macroeconomics and Monetary Economics→Money and Interest Rates→Financial Markets and the Macroeconomy
E51 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit→Money Supply, Credit, Money Multipliers
E52 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit→Monetary Policy
E58 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit→Central Banks and Their Policies
G21 : Financial Economics→Financial Institutions and Services→Banks, Depository Institutions, Micro Finance Institutions, Mortgages
N12 : Economic History→Macroeconomics and Monetary Economics, Industrial Structure, Growth, Fluctuations→U.S., Canada: 1913?
N22 : Economic History→Financial Markets and Institutions→U.S., Canada: 1913?
- 16 November 2020
- WORKING PAPER SERIES - No. 112Details
- Abstract
- In this paper, we analyze the importance of international banking models, along the operational and the funding dimensions, for the decline in international positions of European banks since the crisis. Using BIS Consolidated Banking Statistics, we find that the multinational model (higher reliance on local activity) and the decentralized model (higher weight of local funding over local claims) is associated with lower retrenchment. We also find that more business synchronization between the home and the host economy is associated with higher declines in lending after the crisis and that the multinational and decentralized models mitigate such effect. On the other hand, lending to banks is not affected by the correlation of economic cycles between the home and the host country.
- JEL Code
- F21 : International Economics→International Factor Movements and International Business→International Investment, Long-Term Capital Movements
F23 : International Economics→International Factor Movements and International Business→Multinational Firms, International Business
G15 : Financial Economics→General Financial Markets→International Financial Markets
G21 : Financial Economics→Financial Institutions and Services→Banks, Depository Institutions, Micro Finance Institutions, Mortgages
- 21 October 2020
- NBFI MONITOR REPORT
- 1 October 2020
- RISK DASHBOARDAnnexes
- 1 October 2020
- RISK DASHBOARD
- 1 October 2020
- AMENDMENT
- 1 October 2020
- AMENDMENT
- 1 October 2020
- WORKING PAPER SERIES - No. 111Details
- Abstract
- This paper argues that the European Unions Banking Recovery and Resolution Directive (BRRD) improved market discipline in the European bank market for unsecured debt. The different impact of the BRRD on bank bonds provides a quasi-natural experiment that allows to study the effect of the BRRD within banks using a difference-in-difference approach. Identification is based on the fact that (otherwise identical) bonds of a given bank maturing before 2016 are explicitly protected from BRRD bail-in. The empirical results are consistent with the hypothesis that debt holders actively monitor banks and that the BRRD diminished bail-out expectations. Bank bonds subject to BRRD bail-in carry a 10 basis points bail-in premium in terms of the yield spread. While there is some evidence that the bail-in premium is more pronounced for non-GSIB banks and banks domiciled in peripheral European countries, weak capitalization is the main driver.
- JEL Code
- G18 : Financial Economics→General Financial Markets→Government Policy and Regulation
G21 : Financial Economics→Financial Institutions and Services→Banks, Depository Institutions, Micro Finance Institutions, Mortgages
H81 : Public Economics→Miscellaneous Issues→Governmental Loans, Loan Guarantees, Credits, Grants, Bailouts
- 1 September 2020
- WORKING PAPER SERIES - No. 110Details
- Abstract
- Do governments strategically choose debt maturity to fill supply gaps across maturities? Building on a new panel data set of more than 9,000 individual Eurozone government debt issues between 1999 and 2015, I find that governments increase long-term debt issues following periods of low aggregate Eurozone long-term debt issuance, and vice versa. This gap-filling behaviour is more pronounced for (1) less financially constrained and (2) higher rated governments. Using the ECB’s three-year LTRO in 2011-2012 as an event study, I find that core governments filled the supply gap of longer maturity debt, which resulted from peripheral governments accommodating banks’ short-term debt demand for “carry trades”. This gap-filling implies that governments act as macro-liquidity providers across maturities, thereby adding significant risk absorption capacity to government bond markets.
- JEL Code
- E58 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit→Central Banks and Their Policies
E62 : Macroeconomics and Monetary Economics→Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook→Fiscal Policy
G11 : Financial Economics→General Financial Markets→Portfolio Choice, Investment Decisions
H63 : Public Economics→National Budget, Deficit, and Debt→Debt, Debt Management, Sovereign Debt
- 5 August 2020
- ASC INSIGHT - No. 1
- 23 July 2020
- ANNUAL REPORTEnglishOTHER LANGUAGES (21) +
- 13 July 2020
- OCCASIONAL PAPER SERIES - No. 17Details
- Abstract
- Pension schemes have a significant influence on the saving and consumption decisions of households. Similarly, contributions to pension arrangements are substantial expenditures for national governments and also for corporations, depending on the prevailing pension system. Beyond this, pension schemes play an important role in the economy, channelling savings into investments through capital markets. However, demographic factors and the macroeconomic environment (low interest rates, low growth and low productivity) are raising concerns about the sustainability of pension schemes over the long term, in particular for those of a defined benefit type. Their impact on pension schemes and the way to adjust to them have been under the consideration of national and international institutions for some time. In principle, Pillar 1 pension schemes (i.e. those sponsored by the government) would be more affected by demographic factors, whereas the macroeconomic environment would pose a larger challenge to Pillar 2 and 3 pension schemes (i.e. those where the employer and employees contribute to the scheme, and the residual category, respectively).
- JEL Code
- G23 : Financial Economics→Financial Institutions and Services→Non-bank Financial Institutions, Financial Instruments, Institutional Investors
G28 : Financial Economics→Financial Institutions and Services→Government Policy and Regulation
D15 : Microeconomics→Household Behavior and Family Economics
H55 : Public Economics→National Government Expenditures and Related Policies→Social Security and Public Pensions
J32 : Labor and Demographic Economics→Wages, Compensation, and Labor Costs→Nonwage Labor Costs and Benefits, Retirement Plans, Private Pensions
- 2 July 2020
- RISK DASHBOARDAnnexes
- 2 July 2020
- RISK DASHBOARD
- 2 July 2020
- RISK DASHBOARD
- 2 July 2020
- RISK DASHBOARD
- 8 June 2020
- REPORTS
- 8 June 2020
- REPORTS
- 8 June 2020
- REPORTS
- 14 May 2020
- REPORTS
- 4 May 2020
- OCCASIONAL PAPER SERIES - No. 16Details
- Abstract
- In October 2017, the European Systemic Risk Board (ESRB) set up a group whose objective was to examine cyber security vulnerabilities within the financial sector, and their potential impact on financial stability and the real economy. In its first year, the European Systemic Cyber Group (ESCG) sought to develop a shared understanding of Common Individual Vulnerabilities (CIVs) across ESRB members, and to identify the unique characteristics of cyber risk that could contribute to a systemic event. Building on this work, this paper describes a conceptual model for systemic cyber risk.
- JEL Code
- E17 : Macroeconomics and Monetary Economics→General Aggregative Models→Forecasting and Simulation: Models and Applications
G01 : Financial Economics→General→Financial Crises
G20 : Financial Economics→Financial Institutions and Services→General
K24 : Law and Economics→Regulation and Business Law
L86 : Industrial Organization→Industry Studies: Services→Information and Internet Services, Computer Software
M15 : Business Administration and Business Economics, Marketing, Accounting→Business Administration→IT Management
O33 : Economic Development, Technological Change, and Growth→Technological Change, Research and Development, Intellectual Property Rights→Technological Change: Choices and Consequences, Diffusion Processes
- 15 April 2020
- WORKING PAPER SERIES - No. 109Details
- Abstract
- We design a statistical model for measuring the homogeneity of a financial network that evolves over time. Our model focuses on the level of diversification of financial institutions; that is, whether they are more inclined to distribute their assets equally among partners, or if they rather concentrate their commitments towards a limited number of institutions. Crucially, a Markov property is introduced to capture time dependencies and to make our measures comparable across time. We apply the model on an original dataset of Austrian interbank exposures. The temporal span encompasses the onset and development of the financial crisis in 2008 as well as the beginnings of the European sovereign debt crisis in 2011. Our analysis highlights an overall increasing trend for network homogeneity, whereby core banks have a tendency to distribute their market exposures more equally across their partners.
- JEL Code
- X00 :
X01 :
X02 :
X03 :
- 9 April 2020
- RISK DASHBOARDAnnexes
- 9 April 2020
- RISK DASHBOARD
- 9 April 2020
- AMENDMENT
- 9 April 2020
- RISK DASHBOARD
- 26 February 2020
- REPORTS
- 25 February 2020
- REPORTS
- 19 February 2020
- REPORTS
- 14 February 2020
- WORKING PAPER SERIES - No. 108Details
- Abstract
- We show that the news is a rich source of data on distressed firm links that drive firm-level and aggregate risks. The news tends to report about links in which a less popular firm is distressed and may contaminate a more popular firm. This constitutes a contagion channel that yields predictable returns and downgrades. Shocks to the degree of news-implied firm connectivity predict increases in aggregate volatilities, credit spreads, and default rates, and declines in output. To obtain our results, we propose a machine learning methodology that takes text data as input and outputs a data-implied firm network.
- JEL Code
- E32 : Macroeconomics and Monetary Economics→Prices, Business Fluctuations, and Cycles→Business Fluctuations, Cycles
E44 : Macroeconomics and Monetary Economics→Money and Interest Rates→Financial Markets and the Macroeconomy
L11 : Industrial Organization→Market Structure, Firm Strategy, and Market Performance→Production, Pricing, and Market Structure, Size Distribution of Firms
G10 : Financial Economics→General Financial Markets→General
C82 : Mathematical and Quantitative Methods→Data Collection and Data Estimation Methodology, Computer Programs→Methodology for Collecting, Estimating, and Organizing Macroeconomic Data, Data Access
- 14 February 2020
- WORKING PAPER SERIES - No. 107Details
- Abstract
- I study the problem of regulating a network of interdependent financial institutions that is prone to contagion when there is uncertainty regarding its precise structure. I show that such uncertainty reduces the scope for welfare-improving interventions. While improving network transparency potentially reduces this uncertainty, it does not always lead to welfare improvements. Under certain conditions, regulation that reduces the risk-taking incentives of a small set of institutions can improve welfare. The size and composition of such a set crucially depend on the interplay between (i) the (expected) susceptibility of the network to contagion, (ii) the cost of improving network transparency, (iii) the cost of regulating institutions, and (iv) investors’ preferences.
- JEL Code
- C6 : Mathematical and Quantitative Methods→Mathematical Methods, Programming Models, Mathematical and Simulation Modeling
E61 : Macroeconomics and Monetary Economics→Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook→Policy Objectives, Policy Designs and Consistency, Policy Coordination
G01 : Financial Economics→General→Financial Crises
- 11 February 2020
- ADVISORY SCIENTIFIC COMMITTEE REPORT - No. 10Details
- Abstract
- This report elucidates the risk channels for EU economies associated with international financial integration and provides an overview of the macroprudential policy options that are available to address these risks.1 It builds on the main insights from the rich academic literature developed recently to create a narrative of the role of global variables for the conduct of macroprudential policy at a national level. The report reviews the evidence on the cross-border spillovers of domestic macroprudential policies (MPPs). It also highlights key policy areas for making macroprudential policy as effective as possible. Annex 1 presents findings from several new research papers across the European System of Central Banks.
- 9 January 2020
- REPORTS
- 7 January 2020
- RISK DASHBOARDAnnexes
- 7 January 2020
- RISK DASHBOARD
- 7 January 2020
- RISK DASHBOARD
- 7 January 2020
- RISK DASHBOARD