Essays On Banking And The Macroeconomic Effects Of Financial Intermediation
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Essays On Banking And The Macroeconomic Effects Of Financial Intermediation
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Author : Martin Jose Rostagno Sanchez
language : en
Publisher:
Release Date : 2016
Essays On Banking And The Macroeconomic Effects Of Financial Intermediation written by Martin Jose Rostagno Sanchez and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2016 with categories.
Essays On Financial Intermediation And International Finance
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Author : Paula Andrea Beltran Saavedra
language : en
Publisher:
Release Date : 2022
Essays On Financial Intermediation And International Finance written by Paula Andrea Beltran Saavedra and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2022 with categories.
This dissertation consists of three chapters on financial intermediation and international finance that contribute to our understanding and identification of the transmission of aggregate shocks in imperfect financial markets. The first chapter studies the effect of an aggregate funding supply shock in a lending network in times of distress in a quantitative framework for the money market funds industry in the U.S. The second chapter identifies the effect of cross-border banking flows on macroeconomic and financial outcomes for emerging economies. The third chapter studies the identification of the impact of foreign exchange interventions under a limited risk-bearing capacity of financial intermediaries. The first chapter studies the implications of network frictions for the allocative efficiency of funding provision of the U.S. Money Markets Funds Industry. I build a tractable model of financial intermediation that features an incomplete network of counterparties and bilateral bargaining within a network. I use the quantitative model to assess the effect of a large supply shock of funding in the money market funds industry. I provide an identification framework to estimate the model's parameters and discipline the model using portfolio data of the money market funds industry. I assess a counterfactual taking as primitives the drop in assets under management at the onset of the COVID-19 pandemic and show that the model can account for price dispersion and funding allocation observed in the data. The second chapter assesses the effect of capital flows in emerging countries. We focus on the impact of cross-border banking flows and leverage the size distribution at the bilateral level to construct an instrument for capital inflows. We build a granular instrumental variable to identify the effects on macroeconomic and financial conditions for 22 emerging countries. Cross-border bank credit causes higher domestic activity in EMEs and looser financial conditions. We also show that the effect is heterogeneous across different levels of capital inflow controls. The third chapter studies the effects of foreign exchange intervention. We estimate the causal effect of foreign exchange intervention. Theoretically, the impact of foreign exchange intervention depends on the imperfect asset substitution that relates to the limited risk-bearing capacity of financial intermediaries. To identify the risk-bearing capacity, we use the variation from information free flows of passive investors around rebalancing dates. These flows are plausibly exogenous with respect to domestic conditions and act as a shock to the risk held by financial intermediaries. We show that information-free flows have effects on UIP and CIP deviations. Our preliminary estimates show that the required foreign exchange intervention to achieve a 10% foreign exchange depreciation in one week is between $0.02-$5.06 billion dollars.
Essays On Financial Intermediation And Monetary Policy
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Author : Abolfazl Setayesh Valipour
language : en
Publisher:
Release Date : 2022
Essays On Financial Intermediation And Monetary Policy written by Abolfazl Setayesh Valipour and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2022 with Intermediation (Finance) categories.
My research revolves around financial institutions. In this essay, I aim to further our understandings of the internal workings of financial intermediaries, how they interact in financial networks, and how they affect monetary policy and the macroeconomy. In the first chapter, James Peck and I study a bank run model where the depositors can choose how much to deposit. In the many years and many published articles following the bank runs paper of Diamond and Dybvig (1983), only a few papers have modeled the decision of whether to deposit, much less the decision of how much to deposit. The questions we address here are, how does the opportunity for consumers to invest outside the banking system- in investments that do not provide liquidity insurance- (1) affect the nature of the final allocation, (2) affect the nature of the optimal deposit contract, and (3) affect the fragility of the banking system? We extend the Diamond and Dybvig (1983) model so to incorporate sequential service constraint and the opportunity of outside investments and show that under certain conditions the equilibrium entails partial deposits, thus arguing for the optimality of limited banking. One might think that when depositors are allowed to invest a fraction of their endowments outside the banking system, they would be hedging against the risk of a run occurring, but losing out on some of the services provided by banks. Thus, one might think that this would improve the stability of the financial system at the expense of lost efficiency. However, we show that the opposite could be true, with reduced stability (runs more likely) but higher efficiency! In the second chapter, I study the strategic behavior of heterogeneous banks in a network and its implications on the stability of the financial system. I construct a model alas Allen and Gale (2000) wherein banks differ in whether they are hit by an uninsurable excess liquidity demand. I show that in such a framework banks that are already facing a high liquidity demand are more likely to incur the burden of excess liquidity shocks even when that shock has not directly hit them, i.e. relatively healthier banks strategically pass liquidation costs to relatively less healthy banks. I also show that private bailouts arise endogenously in this framework. If the strategic behavior of a bank results in the other bank's failure, the first bank may choose to incur the burden of the liquidity shock by itself to let the other bank survive and, thus, to control the indirect costs of failure feeding back to its portfolio. I also show that for some economies the financial network becomes more stable as the level of cross-deposits is increased from the minimum level that fully insures banks against liquidity demand uncertainty up to a threshold level. In the third chapter, I study the role of financial intermediaries in the transmission of monetary policy in low interest rate environments. The global financial crisis not only proved our understanding of intermediaries were inaccurate and in many ways misleading but also provided an unprecedented opportunity to investigate the questions in ways that were not possible before. Among those, was the behavior of economic players in ultra-low and even negative market rates. I study the internal workings of intermediaries by exploiting geographical variation in market concentration and provide the first explanation for the gradual deterioration of monetary policy power in low market rates that does not rely on bank-specific characteristics and similarly applies to non-bank intermediaries. I show that- in stark contrast to the textbook view but consistent with my mechanism- in low market rates more concentrated banks respond to market rate falls by reducing their deposit supply as well as their loan supply by more than those of less concentrated banks. I argue this behavior is the response of banks to loan and deposit demand becoming less elastic to market rate changes in low market rates which itself is due to the shift of household assets from the ones that are fully responsive to market rate changes (e.g. money market funds) to those less responsive (e.g. deposits) or irresponsive (e.g. cash) in low market rates. As the market rate falls, The downward pressure of the increased market power and the upward pressure of the traditional channels, cause the non-monotonic response of banks to market rate changes. The results help explain the puzzling slow recovery of the economy as well as stable inflation after the global financial crisis. I also show that local house prices become less responsive to market rate changes in low market rates in the counties that are exposed to high-market-power banks.
Essays On Financial Intermediation And Macroeconomic Policy
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Author : Arsenii Olegovich Mishin
language : en
Publisher:
Release Date : 2020
Essays On Financial Intermediation And Macroeconomic Policy written by Arsenii Olegovich Mishin and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2020 with Banks and banking categories.
This dissertation studies the role of capital requirements in combating excessive risk-taking incentives of banks in two settings.
Current Issues In Financial And Monetary Economics
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Author : Kevin Dowd
language : en
Publisher:
Release Date : 1992
Current Issues In Financial And Monetary Economics written by Kevin Dowd and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 1992 with Banks and banking categories.
In common with other volumes in the series, this book contains essays that review recent developments in an important field of economics, in this case financial and monetary economics. The issues covered include financial intermediation and the operation of financial markets.
Essays On The Macroeconomics Of Banking
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Author :
language : en
Publisher:
Release Date : 2004
Essays On The Macroeconomics Of Banking written by and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2004 with categories.
The role played by financial intermediaries and banks in modern economies is undeniably critical. However, explaining their importance in a theoretical general equilibrium framework presents some challenges. If firms and households have unrestricted access to complete financial markets, then at the competitive equilibrium banks make zero profits and the size and composition of the bank's balance sheet have no impact on the other economic agents. Imperfections in credit markets are key then to explain the unique role of banks when compared to alternative financing methods. The first chapter studies some of these financial frictions focusing on how can they introduce a specific need for bank financing as opposed to alternative methods. This study carries out a macroeconomics general equilibrium analysis of this topic, taking into account the feedback between firms' financing and investment decisions. Having established the relevance of bank financing for economic outcomes, the second chapter is devoted to study how bank lending can become a transmission channel of aggregate shocks to the rest of the economy. It particularly focuses on the role played by bank capital requirements, the most important banking regulation, as a financial accelerator mechanism in a model of real business cycles. Banks becomes more capital constrained during recessions as they suffer more loan losses that erode their equity, and this results in a reduction in loan supply which in turn worsens the severity of the recession. Bank-loan dependent firms suffer the most and aggregate investment and production fall. Following this line of research, the third chapter investigates yet another mechanism by which bank lending can become a transmission channel of aggregate shocks. This one hinges on the pricing of loans by banks and its variation over the business cycle. Price-cost margins can be seen as a wedge in credit markets that produce deadweight losses for the economy. Countercyclical price-cost.
Financial Conditions And Macroeconomic Performance
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Author : Steven M. Fazzari
language : en
Publisher: Routledge
Release Date : 2015-06-05
Financial Conditions And Macroeconomic Performance written by Steven M. Fazzari and has been published by Routledge this book supported file pdf, txt, epub, kindle and other format this book has been release on 2015-06-05 with Business & Economics categories.
This collection of papers on financial instability and its impact on macroeconomic performance honours Hyman P. Minsky and his lifelong work. It is based on a conference at Washington University, St. Louis, in 1990 and includes among the authors Benjamin M. Friedman, Charles P. Kindleberger, Jan Kregel and Steven Fazzari. These papers consider Minsky's definitive analysis that yields such a clear and disturbing sequence of financial events: booms, government intervention to prevent debt contraction and new booms that cause a progressive buildup of new debt, eventually leaving the economy much more fragile financially.
Essays On Banking And Financial Intermediation
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Author : Yuteng Cheng (Ph.D.)
language : en
Publisher:
Release Date : 2022
Essays On Banking And Financial Intermediation written by Yuteng Cheng (Ph.D.) and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2022 with categories.
Chapter 1 uses a mix of theory and data to study the unintended consequences of mandatory retention rules in securitization. The Dodd-Frank Act and the EU Securitization Regulation both impose a 5% mandatory retention requirement in securitization to motivate financial intermediaries to screen and monitor their borrowers more carefully. To better understand the impact of the policy, this chapter studies two related research questions. First, can mandatory retention have unintended consequences? Second, is the current level of retention optimal? To answer those questions, I propose a novel trade-off model in which retention strengthens monitoring but may also encourage banks to shift risk. I go on to provide empirical evidence supporting this unintended consequence: in the data, banks shifted toward riskier portfolios after the implementation of the retention rules embedded in Dodd-Frank. Furthermore, the model provides clear testable predictions about policy and corresponding consequences. I show in the data that stricter retention rules caused banks to monitor and shift risk simultaneously. According to the model prediction, such a simultaneous increase can only occur when the retention level is above optimal, which suggests that the current rate of 5% in the US is too high. Chapter 2Chapter 2 studies the source of fragility of OTC-natured interbank markets. Most research on the fragility of interbank markets -in the sense of multiplicity of equilibria driven by adverse selection-relies on a competitive market structure. By contrast, this chapter accounts for the OTC market nature and the market power of some players. Under adverse selection alone, markets are not fragile; that is, the equilibrium is unique. However, when adverse selection is combined with moral hazard on the borrowers' side, multiple equilibria arise again, and the bad equilibrium exhibits troubled banks gambling for resurrection. An interest rate floor eliminates the bad equilibrium. More generally, policies to reduce fragility should address moral hazard rather than adverse selection. Chapter 3Chapter 3 studies the contracting differences between corporate loans that are sold in the secondary market and that are securitized in the CLO market. With secondary loan sales and CLO markets being the two markets for corporate loan commoditization, empirical studies find that banks add additional restrictive covenants to loans sold and looser covenants to loans securitized. Why is it so? This chapter builds a theoretical model to explain such contracting differences in these two markets. The key mechanism is that the bank alleviates the borrowers' moral hazard problem via public monitoring and charges higher interest rates due to the relaxing of incentives provided. Those high interest rates facilitate loan sales because the information problem embedded in loan sales is lessened. In contrast, adverse selection is less severe in securitization since the bank retains the information-sensitive tranche.
Essays On Banking And Financial Intermediation
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Author : Yuteng Cheng (Ph.D.)
language : en
Publisher:
Release Date : 2022
Essays On Banking And Financial Intermediation written by Yuteng Cheng (Ph.D.) and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2022 with categories.
Chapter 1 uses a mix of theory and data to study the unintended consequences of mandatory retention rules in securitization. The Dodd-Frank Act and the EU Securitization Regulation both impose a 5% mandatory retention requirement in securitization to motivate financial intermediaries to screen and monitor their borrowers more carefully. To better understand the impact of the policy, this chapter studies two related research questions. First, can mandatory retention have unintended consequences? Second, is the current level of retention optimal? To answer those questions, I propose a novel trade-off model in which retention strengthens monitoring but may also encourage banks to shift risk. I go on to provide empirical evidence supporting this unintended consequence: in the data, banks shifted toward riskier portfolios after the implementation of the retention rules embedded in Dodd-Frank. Furthermore, the model provides clear testable predictions about policy and corresponding consequences. I show in the data that stricter retention rules caused banks to monitor and shift risk simultaneously. According to the model prediction, such a simultaneous increase can only occur when the retention level is above optimal, which suggests that the current rate of 5% in the US is too high. Chapter 2Chapter 2 studies the source of fragility of OTC-natured interbank markets. Most research on the fragility of interbank markets -in the sense of multiplicity of equilibria driven by adverse selection-relies on a competitive market structure. By contrast, this chapter accounts for the OTC market nature and the market power of some players. Under adverse selection alone, markets are not fragile; that is, the equilibrium is unique. However, when adverse selection is combined with moral hazard on the borrowers' side, multiple equilibria arise again, and the bad equilibrium exhibits troubled banks gambling for resurrection. An interest rate floor eliminates the bad equilibrium. More generally, policies to reduce fragility should address moral hazard rather than adverse selection. Chapter 3Chapter 3 studies the contracting differences between corporate loans that are sold in the secondary market and that are securitized in the CLO market. With secondary loan sales and CLO markets being the two markets for corporate loan commoditization, empirical studies find that banks add additional restrictive covenants to loans sold and looser covenants to loans securitized. Why is it so? This chapter builds a theoretical model to explain such contracting differences in these two markets. The key mechanism is that the bank alleviates the borrowers' moral hazard problem via public monitoring and charges higher interest rates due to the relaxing of incentives provided. Those high interest rates facilitate loan sales because the information problem embedded in loan sales is lessened. In contrast, adverse selection is less severe in securitization since the bank retains the information-sensitive tranche.
Essays On Financial Intermediation And Deposit Insurance
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Author : George W. Fenn
language : en
Publisher:
Release Date : 1988
Essays On Financial Intermediation And Deposit Insurance written by George W. Fenn and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 1988 with Banks and banking categories.