Bank Capitalization As A Signal

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Bank Capitalization As A Signal

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Author : Mr.Daniel C. Hardy
language : en
Publisher: International Monetary Fund
Release Date : 2012-05-01

Bank Capitalization As A Signal written by Mr.Daniel C. Hardy and has been published by International Monetary Fund this book supported file pdf, txt, epub, kindle and other format this book has been release on 2012-05-01 with Business & Economics categories.

The level of a bank‘s capitalization can effectively transmit information about its riskiness and therefore support market discipline, but asymmetry information may induce exaggerated or distortionary behavior: banks may vie with one another to signal confidence in their prospects by keeping capitalization low, and banks‘ creditors often cannot distinguish among them - tendencies that can be seen across banks and across time. Prudential policy is warranted to help offset these tendencies.

Bank Capitalization As A Signal

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Author : Daniel C. Hardy
language : en
Publisher:
Release Date : 2012-05-01

Bank Capitalization As A Signal written by Daniel C. Hardy and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2012-05-01 with categories.

The level of a bank‘s capitalization can effectively transmit information about its riskiness and therefore support market discipline, but asymmetry information may induce exaggerated or distortionary behavior: banks may vie with one another to signal confidence in their prospects by keeping capitalization low, and banks‘ creditors often cannot distinguish among them - tendencies that can be seen across banks and across time. Prudential policy is warranted to help offset these tendencies.

Finding The Bad Apples In The Barrel Using The Market Value Of Equity To Signal Banking Sector Vulnerabilities

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Author : Will Kerry
language : en
Publisher: International Monetary Fund
Release Date : 2019-08-16

Finding The Bad Apples In The Barrel Using The Market Value Of Equity To Signal Banking Sector Vulnerabilities written by Will Kerry and has been published by International Monetary Fund this book supported file pdf, txt, epub, kindle and other format this book has been release on 2019-08-16 with Business & Economics categories.

This paper measures the performance of different metrics in assessing banking system vulnerabilities. It finds that metrics based on equity market valuations of bank capital are better than regulatory capital ratios, and other metrics, in spotting banks that failed (bad apples). This paper proposes that these market-based ratios could be used as a surveillance tool to assess vulnerabilities in the banking sector. While the measures may provide a somewhat fuzzy signal, it is better to have a strategy for identifying bad apples, even if sometimes the apples turn out to be fine, than not being able to spot any bad apples before the barrel has been spoiled.

International Convergence Of Capital Measurement And Capital Standards

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Author :
language : en
Publisher: Lulu.com
Release Date : 2004

International Convergence Of Capital Measurement And Capital Standards written by and has been published by Lulu.com this book supported file pdf, txt, epub, kindle and other format this book has been release on 2004 with Bank capital categories.

Usability Of Bank Capital Buffers The Role Of Market Expectations

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Author : José Abad
language : en
Publisher: International Monetary Fund
Release Date : 2022-01-28

Usability Of Bank Capital Buffers The Role Of Market Expectations written by José Abad and has been published by International Monetary Fund this book supported file pdf, txt, epub, kindle and other format this book has been release on 2022-01-28 with Business & Economics categories.

Following the COVID shock, supervisors encouraged banks to use capital buffers to support the recovery. However, banks have been reluctant to do so. Provided the market expects a bank to rebuild its buffers, any draw-down will open up a capital shortfall that will weigh on its share price. Therefore, a bank will only decide to use its buffers if the value creation from a larger loan book offsets the costs associated with a capital shortfall. Using market expectations, we calibrate a framework for assessing the usability of buffers. Our results suggest that the cases in which the use of buffers make economic sense are rare in practice.

Financial Intermediation And Deregulation

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Author : Tobias Miarka
language : en
Publisher: Physica
Release Date : 2012-07-24

Financial Intermediation And Deregulation written by Tobias Miarka and has been published by Physica this book supported file pdf, txt, epub, kindle and other format this book has been release on 2012-07-24 with Business & Economics categories.

The author develops a model of bank-firm relationships on the basis of the following general idea: Banks want to prevent moral hazard on the side of their customers. In particular they want to prevent their business customers to use bank credit for purposes different from those that have been negotiated thus damaging the bank's interest. The idea of this model is relatively simple. Banks do not extend a loan if the project for which the money is intended will probably be un profitable. They extend the loan if the success of the project is highly probable and if the revenues from that project are greater than the expenses of the bank for monitoring the customer. Assuming as Miarka does that the results from a successful project are certain, this model is an equivalent to minimizing moni toring costs. In fact, this is the outcome of the model. The banks are known to monitor their loans. They thereby signal to the capital market that they have tested the project. Therefore, the buyer of bonds of the company on the capital market may rest assured that the project is financially sound. The buyers of bonds thus avoid monitoring costs and can grant better credit conditions than the banks. Pur chasers of bor. . ds are free riders on the monitoring of the banks. Miarka tests his model econometrically. The results are amazingly supportive of the model.

Accounting Discretion Of Banks During A Financial Crisis

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Author : Mr.Luc Laeven
language : en
Publisher: International Monetary Fund
Release Date : 2009-09-01

Accounting Discretion Of Banks During A Financial Crisis written by Mr.Luc Laeven and has been published by International Monetary Fund this book supported file pdf, txt, epub, kindle and other format this book has been release on 2009-09-01 with Business & Economics categories.

This paper shows that banks use accounting discretion to overstate the value of distressed assets. Banks' balance sheets overvalue real estate-related assets compared to the market value of these assets, especially during the U.S. mortgage crisis. Share prices of banks with large exposure to mortgage-backed securities also react favorably to recent changes in accounting rules that relax fair-value accounting, and these banks provision less for bad loans. Furthermore, distressed banks use discretion in the classification of mortgage-backed securities to inflate their books. Our results indicate that banks' balance sheets offer a distorted view of the financial health of the banks.

Imf Staff Papers Volume 51 No 1

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Author : International Monetary Fund. Research Dept.
language : en
Publisher: International Monetary Fund
Release Date : 2004-04-20

Imf Staff Papers Volume 51 No 1 written by International Monetary Fund. Research Dept. and has been published by International Monetary Fund this book supported file pdf, txt, epub, kindle and other format this book has been release on 2004-04-20 with Business & Economics categories.

This first issue of Volume 51 for 2004 includes a new paper by Peter B. Clark and Jacques J. Polak, along with a tribute from the Editor to Mr. Polak in honor of his 90th birthday. This issue also launches a new featured section, "Data Issues," which will be devoted in future issues to on-going discussions of the latest in econometric and statistical tools for economists, data puzzles, and other related topics of interest to researchers.

Bank Profitability And Financial Stability

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Author : Ms.TengTeng Xu
language : en
Publisher: International Monetary Fund
Release Date : 2019-01-11

Bank Profitability And Financial Stability written by Ms.TengTeng Xu and has been published by International Monetary Fund this book supported file pdf, txt, epub, kindle and other format this book has been release on 2019-01-11 with Business & Economics categories.

We analyze how bank profitability impacts financial stability from both theoretical and empirical perspectives. We first develop a theoretical model of the relationship between bank profitability and financial stability by exploring the role of non-interest income and retail-oriented business models. We then conduct panel regression analysis to examine the empirical determinants of bank risks and profitability, and how the level and the source of bank profitability affect risks for 431 publicly traded banks (U.S., advanced Europe, and GSIBs) from 2004 to 2017. Results reveal that profitability is negatively associated with both a bank’s contribution to systemic risk and its idiosyncratic risk, and an over-reliance on non-interest income, wholesale funding and leverage is associated with higher risks. Low competition is associated with low idiosyncratic risk but a high contribution to systemic risk. Lastly, the problem loans ratio and the cost-to-income ratio are found to be key factors that influence bank profitability. The paper’s findings suggest that policy makers should strive to better understand the source of bank profitability, especially where there is an over-reliance on market-based non-interest income, leverage, and wholesale funding.

Revisiting Risk Weighted Assets

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Author : Vanessa Le Leslé
language : en
Publisher: International Monetary Fund
Release Date : 2012-03-01

Revisiting Risk Weighted Assets written by Vanessa Le Leslé and has been published by International Monetary Fund this book supported file pdf, txt, epub, kindle and other format this book has been release on 2012-03-01 with Business & Economics categories.

In this paper, we provide an overview of the concerns surrounding the variations in the calculation of risk-weighted assets (RWAs) across banks and jurisdictions and how this might undermine the Basel III capital adequacy framework. We discuss the key drivers behind the differences in these calculations, drawing upon a sample of systemically important banks from Europe, North America, and Asia Pacific. We then discuss a range of policy options that could be explored to fix the actual and perceived problems with RWAs, and improve the use of risk-sensitive capital ratios.