Bank Risk Within And Across Equilibria

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Bank Risk Within And Across Equilibria

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Author : Mr.Itai Agur
language : en
Publisher: International Monetary Fund
Release Date : 2014-07-02

Bank Risk Within And Across Equilibria written by Mr.Itai Agur 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 2014-07-02 with Business & Economics categories.

The global financial crisis highlighted that the financial system can be most vulnerable when it seems most stable. This paper models non-linear dynamics in banking. Small shocks can lead from an equilibrium with few bank defaults straight to a full freeze. The mechanism is based on amplification between adverse selection on banks' funding market and moral hazard in bank monitoring. Our results imply trade-offs between regulators' microprudential desire to shield individual weak banks and the macroprudential consequences of doing so. Moreover, limiting bank reliance on wholesale funding always reduces systemic risk, but limiting the correlation between bank portfolios does not.

Bank Risk Taking And Competition Revisited

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Author : Mr.Gianni De Nicolo
language : en
Publisher: International Monetary Fund
Release Date : 2006-12-01

Bank Risk Taking And Competition Revisited written by Mr.Gianni De Nicolo 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 2006-12-01 with Business & Economics categories.

This paper studies two new models in which banks face a non-trivial asset allocation decision. The first model (CVH) predicts a negative relationship between banks' risk of failure and concentration, indicating a trade-off between competition and stability. The second model (BDN) predicts a positive relationship, suggesting no such trade-off exists. Both models can predict a negative relationship between concentration and bank loan-to-asset ratios, and a nonmonotonic relationship between bank concentration and profitability. We explore these predictions empirically using a cross-sectional sample of about 2,500 U.S. banks in 2003 and a panel data set of about 2,600 banks in 134 nonindustrialized countries for 1993-2004. In both these samples, we find that banks' probability of failure is positively and significantly related to concentration, loan-to-asset ratios are negatively and significantly related to concentration, and bank profits are positively and significantly related to concentration. Thus, the risk predictions of the CVH model are rejected, those of the BDN model are not, there is no trade-off between bank competition and stability, and bank competition fosters the willingness of banks to lend.

Sovereign Risk And Bank Risk Taking

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Author : Mr.Anil Ari
language : en
Publisher: International Monetary Fund
Release Date : 2017-12-14

Sovereign Risk And Bank Risk Taking written by Mr.Anil Ari 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 2017-12-14 with Business & Economics categories.

I propose a dynamic general equilibrium model in which strategic interactions between banks and depositors may lead to endogenous bank fragility and slow recovery from crises. When banks' investment decisions are not contractible, depositors form expectations about bank risk-taking and demand a return on deposits according to their risk. This creates strategic complementarities and possibly multiple equilibria: in response to an increase in funding costs, banks may optimally choose to pursue risky portfolios that undermine their solvency prospects. In a bad equilibrium, high funding costs hinder the accumulation of bank net worth, leading to a persistent drop in investment and output. I bring the model to bear on the European sovereign debt crisis, in the course of which under-capitalized banks in defaultrisky countries experienced an increase in funding costs and raised their holdings of domestic government debt. The model is quantified using Portuguese data and accounts for macroeconomic dynamics in Portugal in 2010-2016. Policy interventions face a trade-off between alleviating banks' funding conditions and strengthening risk-taking incentives. Liquidity provision to banks may eliminate the good equilibrium when not targeted. Targeted interventions have the capacity to eliminate adverse equilibria.

Bank Risk Taking And Competition Revisited

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Author : Mr.Gianni De Nicolo
language : en
Publisher: International Monetary Fund
Release Date : 2003-06-01

Bank Risk Taking And Competition Revisited written by Mr.Gianni De Nicolo 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 2003-06-01 with Business & Economics categories.

This study reinvestigates the theoretical relationship between competition in banking and banks' exposure to risk of failure. There is a large existing literature that concludes that when banks are confronted with increased competition, they rationally choose more risky portfolios. We briefly review this literature and argue that it has had a significant influence on regulators and central bankers, causing them to take a less favorable view of competition and encouraging anti-competitive consolidation as a response to banking instability. We then show that existing theoretical analyses of this topic are fragile, since they do not detect two fundamental risk-incentive mechanisms that operate in exactly the opposite direction, causing banks to aquire more risk per portfolios as their markets become more concentrated. We argue that these mechanisms should be essential ingredients of models of bank competition.

On Default And Uniqueness Of Monetary Equilibria

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Author :
language : en
Publisher:
Release Date : 2015

On Default And Uniqueness Of Monetary Equilibria written by and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2015 with categories.

Competition Vs Stability Oligopolistic Banking System With Run Risk

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Author : Mr. Damien Capelle
language : en
Publisher: International Monetary Fund
Release Date : 2021-04-23

Competition Vs Stability Oligopolistic Banking System With Run Risk written by Mr. Damien Capelle 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 2021-04-23 with Business & Economics categories.

This paper develops a model where large financial intermediaries subject to systemic runs internalize the effect of their leverage on aggregate risk, returns and asset prices. Near the steady-state, they restrict leverage to avoid the risk of a run which gives rise to an accelerator effect. For large adverse shocks, the system enters a zone with high leverage and possibly runs. The length of time the system remains in this zone depends on the degree of concentration through a franchise value, price-drop and recapitalization channels. The speed of entry of new banks after a collapse has a stabilizing effect.

Bank Competition And Financial Stability A General Equilibrium Exposition

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Author : Gianni De Nicolò
language : en
Publisher:
Release Date : 2013

Bank Competition And Financial Stability A General Equilibrium Exposition written by Gianni De Nicolò and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2013 with categories.

Aggregate Risk Bank Competition And Regulation In General Equilibrium

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Author : Ahmad Peivandi
language : en
Publisher: Eliva Press
Release Date : 2020-10-02

Aggregate Risk Bank Competition And Regulation In General Equilibrium written by Ahmad Peivandi and has been published by Eliva Press this book supported file pdf, txt, epub, kindle and other format this book has been release on 2020-10-02 with categories.

We examine the optimal design of bank regulation in a general equilibrium model. The benchmark unregulated economy has a unique equilibrium in which banks are maximally leveraged and financed entirely via inside equity and deposits. We characterize the efficient allocation and show that the unregulated economy underinvests (overinvests) in risky production when aggregate risk is low (high). We carry out a normative analysis by showing how the efficient allocation can be implemented via capital and reserve requirements, deposit insurance and bailouts. There is a range of efficient regulatory policies with a stricter capital requirement on banks being accompanied by a looser reserve requirement and less deposit insurance. Capital and reserve requirements become stricter as aggregate risk increases. Depositor subsidies are efficient if aggregate risk is below a threshold. When aggregate risk exceeds the threshold, it is efficient to subsidize productive firms by levying taxes (in expectation) on bank depositors and equityholders.

Monetary Policy Leverage And Bank Risk Taking

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Author : Mr.Luc Laeven
language : en
Publisher: International Monetary Fund
Release Date : 2010-12-01

Monetary Policy Leverage And Bank Risk Taking 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 2010-12-01 with Business & Economics categories.

We provide a theoretical foundation for the claim that prolonged periods of easy monetary conditions increase bank risk taking. The net effect of a monetary policy change on bank monitoring (an inverse measure of risk taking) depends on the balance of three forces: interest rate pass-through, risk shifting, and leverage. When banks can adjust their capital structures, a monetary easing leads to greater leverage and lower monitoring. However, if a bank's capital structure is fixed, the balance depends on the degree of bank capitalization: when facing a policy rate cut, well capitalized banks decrease monitoring, while highly levered banks increase it. Further, the balance of these effects depends on the structure and contestability of the banking industry, and is therefore likely to vary across countries and over time.

Achieving Financial Stability Challenges To Prudential Regulation

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Author : Kaufman George G
language : en
Publisher: World Scientific
Release Date : 2017-09-22

Achieving Financial Stability Challenges To Prudential Regulation written by Kaufman George G and has been published by World Scientific this book supported file pdf, txt, epub, kindle and other format this book has been release on 2017-09-22 with Business & Economics categories.

The Great Financial Crisis of 2007–2010 exposed the existence of significant imperfections in the financial regulatory framework that encouraged excessive risk-taking and increased system vulnerabilities. The resulting high cost of the crisis in terms of lost aggregate income and wealth, and increased unemployment has reinforced the need to improve financial stability within and across countries via changes in traditional microprudential regulation, as well as the introduction of new macroprudential regulations. Amongst the questions raised are: What are the challenges to prudential regulation? How has the regulatory environment changed in recent years? How do the reforms interplay with market discipline, risk-taking incentives and risk management arrangements?Does the new regulatory framework allow for the introduction of financial innovation, and the associated benefits, without increasing disruptive financial risk? Contents: PrefaceAcknowledgmentsAbout the EditorsAbout the ContributorsSpecial Addresses: Challenges for Future Monetary Policy Frameworks: A European Perspective (Vítor Constâncio)Income Inequality: The Battlefield Casualty of Post-Crisis Financial Policy (Karen Shaw Petrou)A Practical Case for Rules-Based Macroprudential Policy (Adam S Posen)Financial Regulation: The Evolving Macro- and Microprudential Landscape: Evolving Micro- and Macroprudential Regulations in the United States: A Primer (Diana Hancock)The Regulatory Response to the Sovereign-Bank Nexus (Luc Laeven)Japan's Regulatory Responses to Banking Crisis (Masami Imai)The Costs and Benefits of Bank Capital Requirements (Gianni De Nicolò)Capital Regulation: Capital Regulation: How Much Capital is Needed? (Mark Carey)CoCos: A Promising Idea Poorly Executed (Richard J Herring)Capital Regulation: Lessons from a Macroeconomic Model (Caterina Mendicino, Kalin Nikolov and Dominik Supera)Liquidity Regulation: How Should Bank Liquidity be Regulated? (Franklin Allen and Douglas Gale)How Do We Figure Out Optimal Liquidity Regulation? (Douglas W Diamond and Anil K Kashyap) The Interplay Between Liquidity Regulation, Monetary Policy Implementation and Financial Stability(Todd Keister)Liquidity and Capital: Substitutes or Complements? (Marie Hoerova)Market Infrastructures, Central Clearing and Collateral Management: An Incentive Theory of Counterparty Risk, Margins, and CCP Design (Florian Heider)Monitoring CCP Exposure, In Real Time If Needed (Albert J Menkveld)Regulation and Financial Innovation: Innovation & Regulation: Some Preliminary Observations (Michael S Barr)Financial Innovation and Regulation (Thorsten Beck)Thoughts About Financial Innovation (Josh Lerner and Peter Tufano)How Technological Innovation Will Reshape Financial Regulation (Carmelo Salleo)Bail-in Versus Bail-Outs: Incentives and Financial Stability: Bail-in-Able Debt and Fragility (Russell Cooper)Government Guarantees to Financial Institutions: Banks' Incentives and Fiscal Sustainability (Agnese Leonello)The Unconvertible CoCo Bonds (Paul Glasserman and Enrico Perotti)Where to From Here?: The Macroprudential Toolkit (Richard Berner)The Great Financial Crisis and Its Aftermath: A