Unconventional Monetary Policy Shocks In The Euro Area And The Sovereign Bank Nexus
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Unconventional Monetary Policy Shocks In The Euro Area And The Sovereign Bank Nexus
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Author : Nikolay Hristov
language : en
Publisher:
Release Date : 2020
Unconventional Monetary Policy Shocks In The Euro Area And The Sovereign Bank Nexus written by Nikolay Hristov and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2020 with categories.
We explore the effects of the ECB's unconventional monetary policy on the banks' sovereign debt portfolios. In particular, using panel vector autoregressive (VAR) models we analyze whether banks increased their domestic government bond holdings in response to non-standard monetary policy shocks, thereby possibly promoting the sovereign-bank nexus, i.e. the exposure of banks to the debt issued by the national government. Our results suggest that euro area crisis countries' banks enlarged their exposure to domestic sovereign debt after innovations related to unconventional monetary policy. Moreover, the restructuring of sovereign debt portfolios was characterized by a home bias.
Managing The Sovereign Bank Nexus
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Author : Mr.Giovanni Dell'Ariccia
language : en
Publisher: International Monetary Fund
Release Date : 2018-09-07
Managing The Sovereign Bank Nexus written by Mr.Giovanni Dell'Ariccia 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 2018-09-07 with Business & Economics categories.
This paper reviews empirical and theoretical work on the links between banks and their governments (the bank-sovereign nexus). How significant is this nexus? What do we know about it? To what extent is it a source of concern? What is the role of policy intervention? The paper concludes with a review of recent policy proposals.
The Impact Of Unconventional Monetary Policy On The Sovereign Bank Nexus Within And Across Eu Countries A Time Varying Conditional Correlation Analysis
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Author : Giulio Cifarelli
language : en
Publisher:
Release Date : 2016
The Impact Of Unconventional Monetary Policy On The Sovereign Bank Nexus Within And Across Eu Countries A Time Varying Conditional Correlation Analysis written by Giulio Cifarelli 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.
We investigate the time varying dynamics of the linkages between sovereign and bank default risks over the period 2006-2015, using the credit default swap (CDS) spreads of the bonds of major international banks and of sovereign issuers as indicators of risk within four major European countries. The nexus between bank risk in core countries and sovereign risk of peripheral countries is also analyzed, under the hypothesis that higher bond yields and preferential treatment of bond issued by euro sovereigns under Basle II may have favored the stocking of peripheral sovereign bonds in core bank portfolios. The use of a time-varying regime switching correlation analysis, the STCC-GARCH, allows to identify the economic variable behind the state shifts, the so-called “transition variable”, and to date precisely the changes in the size of the correlations that are due to shocks (viz. the Lehman crisis, the evolution of the Greek crisis) or to unconventional monetary policies such as Quantitative Easing and TLTRO.
A New Wave Of Ecb S Unconventional Monetary Policies Domestic Impact And Spillovers
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Author : Richard Varghese
language : en
Publisher: International Monetary Fund
Release Date : 2018-01-24
A New Wave Of Ecb S Unconventional Monetary Policies Domestic Impact And Spillovers written by Richard Varghese 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 2018-01-24 with Business & Economics categories.
ECB President Draghi’s Jackson Hole speech in August 2014 arguably marked a new phase of unconventional monetary policies (UMPs) in the euro area. This paper examines the market impact and tranmission channels of this new wave of UMPs using a modified event study framework. They are found to have a more prominent impact on inflation expectations and exchange rates compared to the earlier UMP announcements. The impact on bank equity, however, is less significant in part due to narrowing profit margin in a low interest rate environment; and the marginal effect on sovereign spread compression has diminished. By extracting components of monetary policy shocks from the yield curve, we find that the traditional signaling channel of the monetary policy transmission continued to play an important role, but the portfolio rebalancing channel became more important in the new phase. Spillovers to non-euro area EU countries (the Czech Republic, Denmark, Poland, and Sweden) are transmitted mainly through the portfolio rebalancing channel, largely affecting sovereign yields and exchange rates.
The Sovereign Bank Nexus In The Euro Area
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Author :
language : en
Publisher:
Release Date : 2019
The Sovereign Bank Nexus In The Euro Area written by and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2019 with categories.
The sovereign-bank nexus played a key role in the 2009-12 European debt crisis by enabling pernicious dynamics whereby governments and domestic banking sectors mutually enfeebled each other. This paper reviews the direct (financial) channels and the indirect (real) channels through which banks and sovereigns interact, and that can give rise to feedback loops between the two sectors. While significant progress has been achieved in mitigating the direct channel of the loop in recent years, the indirect mechanisms of the loop stayed largely intact. Policy options for improving the financial stability of both banks and sovereigns across the euro area have been discussed, including measures to increase the diversification of banks' sovereign debt holdings. Focusing on diversification as a standalone measure, a review of the literature and model-based simulations suggest an ambiguous impact on systemic risk. However, in those cases where diversification can either reduce total risks or keep them unchanged, it can also deliver an important shock absorption effect in crisis periods. In such cases, simulations show that higher cross-border integration of banking sectors would dilute the impact of asymmetric shocks across the regions of a monetary union, thus increasing the overall welfare of risk averse households.
The Impact Of Unconventional Monetary Policy On Euro Area Public Finances
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Author : Pablo Burriel
language : en
Publisher:
Release Date : 2017
The Impact Of Unconventional Monetary Policy On Euro Area Public Finances written by Pablo Burriel and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2017 with categories.
Unconventional monetary policy measures implemented by the European Central Bank in recent years have helped to reduce interest rates on sovereign debt in the euro area as a whole. In addition to the direct impact on debt servicing payments, monetary policy conduct in the most recent period has had positive macroeconomic effects which have indirectly impacted the cyclical revenue and expenditure items in the government budget. This article approximately quantifies both direct and indirect effects for the main countries in the euro area.
International Liquidity Shocks And The European Sovereign Debt Crisis
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Author :
language : en
Publisher:
Release Date : 2015
International Liquidity Shocks And The European Sovereign Debt Crisis 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.
How Loose How Tight A Measure Of Monetary And Fiscal Stance For The Euro Area
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Author : Nicoletta Batini
language : en
Publisher: International Monetary Fund
Release Date : 2020-06-05
How Loose How Tight A Measure Of Monetary And Fiscal Stance For The Euro Area written by Nicoletta Batini 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 2020-06-05 with Business & Economics categories.
This paper builds a model-based dynamic monetary and fiscal conditions index (DMFCI) and uses it to examine the evolution of the joint stance of monetary and fiscal policies in the euro area (EA) and in its three largest member countries over the period 2007-2018. The index is based on the relative impacts of monetary and fiscal policy on demand using actual and simulated data from rich estimated models featuring also financial intermediaries and long-term government debt. The analysis highlights a short-lived fiscal expansion in the aftermath of the Global Financial Crisis, followed by a quick tightening, with monetary policy left to be the “only game in town” after 2013. Individual countries’ DMFCIs show that national policy stances did not always mirror the evolution of the aggregate stance at the EA level, due to heterogeneity in the fiscal stance.
Bank Solvency And Funding Cost
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Author : Mr.Stefan W. Schmitz
language : en
Publisher: International Monetary Fund
Release Date : 2017-05-15
Bank Solvency And Funding Cost written by Mr.Stefan W. Schmitz 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 2017-05-15 with Business & Economics categories.
This paper presents new evidence on the empirical relationship between bank solvency and funding costs. Building on a newly constructed dataset drawing on supervisory data for 54 large banks from six advanced countries over 2004–2013, we use a simultaneous equation approach to estimate the contemporaneous interaction between solvency and liquidity. Our results show that liquidity and solvency interactions can be more material than suggested by the existing empirical literature. A 100 bps increase in regulatory capital ratios is associated with a decrease of bank funding costs of about 105 bps. A 100 bps increase in funding costs reduces regulatory capital buffers by 32 bps. We also find evidence of non-linear effects between solvency and funding costs. Understanding the impact of solvency on funding costs is particularly relevant for stress testing. Our analysis suggests that neglecting the dynamic features of the solvency-liquidity nexus in the 2014 EU-wide stress test could have led to a significant underestimation of the impact of stress on bank capital ratios.
Banks Government Bonds And Default
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Author : Nicola Gennaioli
language : en
Publisher: International Monetary Fund
Release Date : 2014-07-08
Banks Government Bonds And Default written by Nicola Gennaioli 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 2014-07-08 with Business & Economics categories.
We analyze holdings of public bonds by over 20,000 banks in 191 countries, and the role of these bonds in 20 sovereign defaults over 1998-2012. Banks hold many public bonds (on average 9% of their assets), particularly in less financially-developed countries. During sovereign defaults, banks increase their exposure to public bonds, especially large banks and when expected bond returns are high. At the bank level, bondholdings correlate negatively with subsequent lending during sovereign defaults. This correlation is mostly due to bonds acquired in pre-default years. These findings shed light on alternative theories of the sovereign default-banking crisis nexus.