-
Distance lending & social connectedness J. Financ. Stab. (IF 3.554) Pub Date : 2024-03-14 Ankit Kariya, Chhavi Shekhawat
Using Facebook’s social network data for the US counties, we examine whether social connectedness reduces the informational disadvantage in lending to small businesses at a distance. We find that for a given distance, there is a pecking order of lending. Banks first lend to more socially connected counties, and later, banks expand credit to socially less connected areas. The probability of loan charge-off
-
A model of managerial compensation, firm leverage and credit stimulus J. Financ. Stab. (IF 3.554) Pub Date : 2024-03-07 Rajdeep Chakraborti, Sandeep Dahiya, Lei Ge, Pedro Gete
We study a model in which leverage and compensation are both choice variables for the firm and borrowing spreads are endogenous. First, we analyze the correlation between leverage and variable compensation. We show that allowing for endogenous compensation and leverage can explain the conflicting findings of the empirical literature. We uncover a new channel of complementarity between effort and leverage
-
Loan guarantees in a crisis: An antidote to a credit crunch? J. Financ. Stab. (IF 3.554) Pub Date : 2024-03-01 W. Blake Marsh, Padma Sharma
Credit contractions are costly, but policymakers have limited tools to counter them. In this paper, we examine the efficacy of public credit guarantees as antidotes to a credit crunch by studying the Paycheck Protection Program (PPP). We find that the program averted a historic credit crunch at a time when banks were unlikely to meet firm credit needs by risking their own capital. Our evaluation incorporates
-
The demand for central clearing: To clear or not to clear, that is the question! J. Financ. Stab. (IF 3.554) Pub Date : 2024-02-24 Mario Bellia, Giulio Girardi, Roberto Panzica, Loriana Pelizzon, Tuomas Peltonen
This paper empirically analyses whether post-global financial crisis regulatory reforms have created appropriate incentives to voluntarily centrally clear over-the-counter (OTC) derivative contracts. We use confidential European trade repository data on single-name sovereign credit default swap (CDS) transactions and show that both seller and buyer manage counterparty exposures and capital costs, strategically
-
Government debt and stock price crash risk: International Evidence J. Financ. Stab. (IF 3.554) Pub Date : 2024-02-16 Hamdi Ben-Nasr, Sabri Boubaker
We add to the literature on the economic outcomes of government debt and argue that government debt increases crash risk via two channels: (i) hoarding bad news and (ii) tax avoidance. Based on a large international sample, our results indicate that stock crash risk is positively associated with government debt. Our conclusions are robust when we treat endogeneity issues, and our tests confirm the
-
Sovereign credit spreads, banking fragility, and global factors J. Financ. Stab. (IF 3.554) Pub Date : 2024-02-08 Anusha Chari, Felipe Garcés, Juan Francisco Martínez, Patricio Valenzuela
This study explores the relationship between sovereign credit risk, banking fragility, and global financial factors in a large panel database of emerging market economies. To measure banking fragility, we construct a novel model-based semi-parametric metric (JLoss) that computes the expected joint loss of the banking sector in each country conditional on a country-level systemic event. Our metric of
-
The role of banks’ technology adoption in credit markets during the pandemic J. Financ. Stab. (IF 3.554) Pub Date : 2024-02-07 Nicola Branzoli, Edoardo Rainone, Ilaria Supino
This paper shows that higher information technology (IT) adoption by banks was associated to a larger increase in corporate lending in the months following the COVID-19 outbreak in Italy. Examining banks with heterogeneous degrees of IT adoption, we investigate the dynamics of credit and its allocation across firms using a new database with detailed information on banks’ IT expenditures and use of
-
Over with carbon? Investors’ reaction to the Paris Agreement and the US withdrawal J. Financ. Stab. (IF 3.554) Pub Date : 2024-02-07 Lucia Alessi, Stefano Battiston, Virmantas Kvedaras
How financial investors may react to policy events related to sustainability and climate change mitigation in particular, is a key question with implications for sustainable finance and financial stability. We address this question by carrying out a multi-period difference-in-difference approach on a confidential database of securities holdings of the European Central Bank, and we provide evidence
-
Bank runs, prudential tools and social welfare in a global game general equilibrium model J. Financ. Stab. (IF 3.554) Pub Date : 2024-02-06 Daisuke Ikeda
Basel III features requirements on bank capital and liquidity along with disclosure requirements. I study these requirements by developing a general equilibrium model with bank runs in a global game framework, where leverage, liquidity, interest rates, and the probability of a banking crisis are all determined endogenously. With timely disclosure about bank assets, the unregulated economy has efficient
-
Shock amplification in an interconnected financial system of banks and investment funds J. Financ. Stab. (IF 3.554) Pub Date : 2024-02-03 Matthias Sydow, Aurore Schilte, Giovanni Covi, Marija Deipenbrock, Leonardo Del Vecchio, Pawel Fiedor, Gábor Fukker, Max Gehrend, Régis Gourdel, Alberto Grassi, Björn Hilberg, Michiel Kaijser, Georgios Kaoudis, Luca Mingarelli, Mattia Montagna, Thibaut Piquard, Dilyara Salakhova, Natalia Tente
This paper shows how the combined endogenous reaction of banks and investment funds to an exogenous shock can amplify or dampen losses to the financial system compared to results from single-sector stress testing models. We build a new model of contagion propagation using a very large and granular data set for the euro area. Based on the economic shock caused by the Covid-19 outbreak, we model three
-
Assessing the systemic risk impact of bank bail-ins J. Financ. Stab. (IF 3.554) Pub Date : 2024-02-03 Christoph Siebenbrunner, Martin Hafner-Guth, Ralph Spitzer, Stefan Trappl
Financial regulation has introduced bail-ins (i.e. enforced debt-to-equity swaps) as a tool for orderly bank resolution, and hence it is the authorities’ task to decide when to apply this tool in a resolution. We present a quantitative framework to support this decision by computing the systemic impact of a bail-in. Our model takes into account systemic feedback effects using state-of-the-art multilayer
-
The double materiality of climate physical and transition risks in the euro area J. Financ. Stab. (IF 3.554) Pub Date : 2024-02-03 Régis Gourdel, Irene Monasterolo, Nepomuk Dunz, Andrea Mazzocchetti, Laura Parisi
We analyse the double materiality of climate physical and transition risks in the euro area economy and banking sector. First, by tailoring the EIRIN Stock-Flow Consistent behavioural model, we provide a dynamic balance sheet assessment of the Network for Greening the Financial System (NGFS) scenarios. We find that an orderly transition achieves early co-benefits by reducing CO emissions (12% less
-
-
The topological structure of panel variance decomposition networks J. Financ. Stab. (IF 3.554) Pub Date : 2024-02-02 Alessandro Celani, Paola Cerchiello, Paolo Pagnottoni
In this paper we provide a framework to study the network topology of generalized forecast error variance decomposition (GFEVD) derived from multi-country, multi-variable time series models. Our dynamic variance decomposition network is based on a Bayesian Global Vector Autoregressive (GVAR) model, a suitable macroeconometric method to consider simultaneous multi-level interdependencies across variables
-
Spillovers in Europe: The role of ESG J. Financ. Stab. (IF 3.554) Pub Date : 2024-02-02 Karoline Bax, Giovanni Bonaccolto, Sandra Paterlini
This paper explores the relationship between environmental, social and governance (ESG) information and systemic risk, an increasingly important issue for both regulators and investors. While ESG ratings are widely used to assess a company’s non-financial performance, the impact of these factors on financial stability and systemic risk is still under debate. By extending the Forecast Error Variance
-
Financial stability through the lens of complex systems J. Financ. Stab. (IF 3.554) Pub Date : 2024-01-26 Grzegorz Hałaj, Serafin Martinez-Jaramillo, Stefano Battiston
In this cover paper, we introduce a Special Issue (SI) published after the fourth edition of a series of financial stability conferences organized by Bank of Mexico, CEMLA, Bank of Canada, Zurich University and the Journal of Financial Stability in November 2021. Before providing our perspective on why the research papers included into the SI are of great relevance, we give a brief and personal overview
-
Isolating defensive corporate ESG effects: Evidence from purely domestic anti-COVID-19 measures J. Financ. Stab. (IF 3.554) Pub Date : 2024-01-24 John W. Goodell, Shaen Corbet, Yang (Greg) Hou, Yang Hu, Les Oxley
Few studies investigate whether ESG mitigates the harmful effects of changes in firms’ external environments. We evidence that ESG mitigated the impact of COVID-19 work-from-home and workplace prescriptions amongst several other pandemic-related government regulatory interventions, even when controlling for firm size. In a novel approach, we apply scrutiny of firms to restrict our cross-national sample
-
Do interbank markets price systemic risk? J. Financ. Stab. (IF 3.554) Pub Date : 2024-01-27 Michael Sigmund, Christoph Siebenbrunner
The breakdown of the interbank market was a critical moment in the unfolding of the global financial crisis of 2007–2008. We argue that the adequate pricing of risks is critical for the functioning of a market of such vital importance as the interbank market. We use a unique panel data set that allows us to quantify counterparty risk and different types of systemic risks associated with interbank exposures
-
Modelling fire sale contagion across banks and non-banks J. Financ. Stab. (IF 3.554) Pub Date : 2024-01-26 Fabio Caccioli, Gerardo Ferrara, Amanah Ramadiah
We examine the impact of fire sales on the UK financial system through commonly held assets across different financial sectors. In particular, we model indirect contagion via fire sales across UK banks and non-banks subject to different types of constraints. We find that performing a stress simulation that does not account for common asset holdings across multiple sectors can severely underestimate
-
“Thank me later”: Why is (macro)prudence desirable? J. Financ. Stab. (IF 3.554) Pub Date : 2024-01-26 Graeme Cokayne, Eddie Gerba, Andreas Kuchler, Rasmus Pank Roulund
We examine the social desirability of macroprudential measures, particularly those aimed at riskier home buyers. We examine the effectiveness of these measures against social costs, such as reduced access to the housing ladder for poorer households. Our analysis shows that the measures implemented so far have not limited access to credit or the housing markets. They have been effective in limiting
-
Uncertainty, non-linear contagion and the credit quality channel: An application to the Spanish interbank market J. Financ. Stab. (IF 3.554) Pub Date : 2024-01-26 Adrian Carro, Patricia Stupariu
Using granular data from the Spanish Credit Register, we study the contagion of financial distress via the credit quality channel in the Spanish interbank market. We propose a non-linear contagion mechanism dependent on banks’ balance-sheet structure (specifically, their leverage ratios). Moreover, we explicitly model uncertainty in lenders’ assessments of the probability of default of their borrowers
-
On the optimal control of interbank contagion in the euro area banking system J. Financ. Stab. (IF 3.554) Pub Date : 2024-01-26 Gábor Fukker, Christoffer Kok
In this paper we present a methodology of model-based calibration of additional capital needed in an interconnected financial system to minimize potential contagion losses. Building on ideas from combinatorial optimization tailored to controlling contagion in case of complete information about an interbank network, we augment the model with three plausible types of fire sale mechanisms. We then demonstrate
-
Temporal networks and financial contagion J. Financ. Stab. (IF 3.554) Pub Date : 2024-01-26 Fabio Franch, Luca Nocciola, Angelos Vouldis
This paper studies the dynamics of contagion across the banking, insurance and shadow banking sectors of 18 advanced economies in the period 2006-2018. We construct Granger causality-in-risk networks and introduce higher-order aggregate networks and higher-order node centralities in an economic setting to capture non-Markovian network features. Our approach uncovers the dynamics of financial contagion
-
Stock price crash risk and firms’ operating leverage J. Financ. Stab. (IF 3.554) Pub Date : 2024-01-25 Xin Chang, Louis T.W. Cheng, Wing Chun Kwok, George Wong
We extend Jin and Myers’s (2006) model to derive the relation between stock price crash risk and operating leverage (i.e., the fraction of fixed costs in total costs). The model predicts that (1) firms’ operating leverage decreases as stock price crash risk increases and (2) the negative effect of crash risk on operating leverage is more pronounced when firms are closer to the crash threshold or when
-
In Memoriam - Phil Molyneux J. Financ. Stab. (IF 3.554) Pub Date : 2024-01-15 Lamar Clayton
Abstract not available
-
Endogenous Bank Regulation and Supervision: Long Term Implications J. Financ. Stab. (IF 3.554) Pub Date : 2024-01-09 Oğuz Kaan Karakoyun, Mustafa U. Karakaplan, Bilin Neyaptı
The role of bank regulation and supervision (RS) on financial stability and welfare has been subject to ongoing research, especially since the Great Recession. RS is expected to help eliminate the adverse selection and moral hazard problems that are abundant in financial transactions. In this paper, we present a general equilibrium model that is augmented by either a bank regulatory and supervisory
-
Auditor certification and long-run performance of IPO stocks J. Financ. Stab. (IF 3.554) Pub Date : 2023-12-29 Sudip Datta, Mark Gruskin, Mai Iskandar-Datta
This study establishes a significant positive relation between high quality auditors and long-run post-IPO equity performance. IPOs associated with high-ranked auditors benefit from superior information quality irrespective of underwriter rank, manifesting in significantly better post-IPO equity performance. The auditor certification effect is robust and persists longer than the underwriter certification
-
Mispricing of debt expansion in the eurozone sovereign credit market J. Financ. Stab. (IF 3.554) Pub Date : 2023-12-26 Somayyeh Lotfi, Andreas Milidonis, Stavros A. Zenios
We find evidence consistent with risk mispricing in the eurozone sovereign credit market for crisis and non-crisis countries alike, using a novel variable of sovereign debt expansion (DE) that we construct. DE predicts increased default probability, but panel regressions from 2002 to 2017 show a negative association with risk premia, even when controlling for risk appetite and the known determinants
-
Climate-change regulations: Bank lending and real effects J. Financ. Stab. (IF 3.554) Pub Date : 2023-12-21 Faruk Miguel, Alvaro Pedraza, Claudia Ruiz-Ortega
We analyze how capital requirements from environmental risk exposure affect bank lending to the corporate sector, and how these effects transmit to real economic activity and to greenhouse gas emissions. To do so, we exploit the introduction of a policy in Brazil that required banks to incorporate environmental risks in their capital assessments. Using comprehensive credit data, we find that the policy
-
Bank opacity, systemic risk and financial stability J. Financ. Stab. (IF 3.554) Pub Date : 2023-12-21 Michael Mies
This paper examines the impact of bank opacity on European financial stability. Based on a panel dataset of listed European banks covering the period 2002–2018, I find that bank opacity has a significant influence on the institution-specific contribution to the ∆Conditional Value at Risk and Marginal Expected Shortfall. The enforcement mechanism and the policies introduced by accounting standard setters
-
Bubble occurrence and landing J. Financ. Stab. (IF 3.554) Pub Date : 2023-12-15 Junmin Wan
First, a rational bubble with a stochastic crash is modelled under conditions of timelessness (or strictly a zero interest rate) and an infinite number of investors. The necessary and sufficient conditions for this bubble are a strictly positive bubble premium and a sufficient number of investors. Second, it is shown that a rational bubble occurs under a strictly negative interest rate. Finally, whether
-
A thousand words tell more than just numbers: Financial crises and historical headlines J. Financ. Stab. (IF 3.554) Pub Date : 2023-12-16 Kim Ristolainen, Tomi Roukka, Henri Nyberg
We show that financial crises are preceded by changes in specific types of narrative information contained in newspaper article titles. Our novel international dataset and the resulting empirical evidence are gathered by integrating information from a large panel of economic news articles in global newspapers between the years 1870 and 2016 with conventional macroeconomic and financial indicators.
-
What broke the pearl of the Indian ocean? The causes of the Sri Lankan economic crisis and its policy implications J. Financ. Stab. (IF 3.554) Pub Date : 2023-12-16 Lalith P. Samarakoon
Sri Lanka unilaterally defaulted on its external debt in April 2022, exposing its long-standing economic and financial vulnerabilities and igniting a series of inter-related multiple economic crises—fiscal, debt, currency, inflation, and balance of payments—as well as a vast socio-political upheaval. This paper analyses the economic crisis and its various dimensions to understand the sources of the
-
Are green loans less risky? Micro-evidence from a European Emerging Economy J. Financ. Stab. (IF 3.554) Pub Date : 2023-12-09 Florian Neagu, Luminița Tatarici, Florin Dragu, Amalia Stamate
The role played by the banking sector in supporting the green transition has been limited but is expected to increase substantially. We investigate whether the green loans granted by Romanian financial institutions during the period from 2010 to 2020 bear less credit risk compared with other loans in their portfolio. In this respect, we use a novel micro database with information on all green loans
-
How does the repo market behave under stress? Evidence from the COVID-19 crisis J. Financ. Stab. (IF 3.554) Pub Date : 2023-12-07 Anne-Caroline Hüser, Caterina Lepore, Luitgard Anna Maria Veraart
We examine how the repo market operates during liquidity stress by applying network analysis to novel transaction-level data of the overnight gilt repo market including the COVID-19 crisis. We find that during this crisis the repo network becomes more connected, with most institutions relying on previously used counterparties. There are however important changes in the repo volumes and spreads during
-
ESG activity and bank lending during financial crises J. Financ. Stab. (IF 3.554) Pub Date : 2023-11-24 Gamze Ozturk Danisman, Amine Tarazi
This paper explores how banks’ environmental, social, and governance (ESG) activities affect their lending during financial crises. We use a sample of European listed banks with available ESG scores from 2002 to 2020 and consider the global financial crisis of 2007–2009 and the European sovereign debt crisis of 2010–2012. We estimate a two-step system GMM dynamic panel data model and also address potential
-
Hedging inflation expectations in the cryptocurrency futures market J. Financ. Stab. (IF 3.554) Pub Date : 2023-11-22 Jinan Liu, Victor J. Valcarcel
This paper finds the first evidence of time variation in the relationship between inflation expectations and the price of cryptocurrency futures. Daily data on the futures markets of Bitcoin – starting in December 2017 – and Ethereum – available since February 2021 – reveal responses to inflation expectations that are consistently positive across both measures in a full sample encompassing 2022. These
-
External wealth of nations and systemic risk J. Financ. Stab. (IF 3.554) Pub Date : 2023-11-15 Alin Marius Andrieş, Alexandra Maria Chiper, Steven Ongena, Nicu Sprincean
External imbalances played a pivotal role leading to the global financial crisis and were an important cause of turmoil. While current account (flow) imbalances narrowed in the aftermath of the crisis, the net international investment position (NIIP) (stock) imbalances persisted. This study explores the implications of countries’ net foreign positions on systemic risk. Using a sample of 470 banks located
-
The impact of COVID-19 on sovereign contagion J. Financ. Stab. (IF 3.554) Pub Date : 2023-11-14 Anastasios Drakos, Georgios Moratis
In the midst of the unprecedented COVID-19 pandemic crisis, the scope of the current study is to outline the channels of shock propagation across sovereigns under these unprecedent conditions. We use a sample of European countries for a period of twelve years that encompasses the COVID-19 as well as the turbulent period of the European debt crisis. We apply Bayesian Vector Autoregressive techniques
-
From liquidity risk to systemic risk: A use of knowledge graph J. Financ. Stab. (IF 3.554) Pub Date : 2023-11-14 Ren-Raw Chen, Xiaohu Zhang
In this paper, we use knowledge graph (KG) to study systemic risk in the banking industry. KG provides a graphic representation of the connections of entities of interest (known as vertices or nodes) with the strengths of connections being reflected by the lines connecting them (known as edges) or distances between them. As a result, KG is a natural tool for visualizing the relationships among financial
-
Climate risks and financial stability: Evidence from the European financial system J. Financ. Stab. (IF 3.554) Pub Date : 2023-11-10 Miia Chabot, Jean-Louis Bertrand
Climate-related risks have become a major concern for financial regulators and can pose a significant threat to financial stability. In this paper, we first propose a theoretical framework for the transmission of climate risks to financial institutions and the financial system. We then estimate the influence of physical and transition risks on the European financial system through bank-level and system-wide
-
Direct and indirect impacts of natural disasters on banks: A spatial framework J. Financ. Stab. (IF 3.554) Pub Date : 2023-11-10 James R. Barth, Qinyou Hu, Robin Sickles, Yanfei Sun, Xiaoyu Yu
We examine the direct and indirect impacts of natural disasters on deposit rates of U.S. bank branches from 2008 to 2017. We capture the indirect impact by the spatial spillover effects of disasters, from branches directly exposed to such disasters to neighboring branches. We theoretically motivate our spatial framework by local competition for deposits among branches and provide empirical evidence
-
Portfolio choice algorithms, including exact stochastic dominance J. Financ. Stab. (IF 3.554) Pub Date : 2023-11-10 H.D. Vinod
Assume data on Nj stock (asset) returns are available for p stocks, allowing us to construct approximate density functions f(xj) for (j=1, 2, …, p) from p empirical cumulative distribution functions (ECDFs). Our portfolio choice is designed to rank ECDF-induced, ill-behaved f(xj) densities subject to multiple modes, asymmetric fat tails, dips, turns, and numerous overlaps. Older portfolio theory assumes
-
Social responsibility and bank resiliency J. Financ. Stab. (IF 3.554) Pub Date : 2023-11-10 Thomas Gehrig, Maria Chiara Iannino, Stephan Unger
We find strong evidence that measures of social responsibility contribute to increasing the resilience of banks. This finding holds when social responsibility is measured by aggregated ESG scores provided by Thomson Reuters, both according to their older Asset 4 categorization and to the reformed ESG Refinitiv classification, and resilience is proxied by various measures of systemic and systematic
-
Social capital and dividend policies in US corporations J. Financ. Stab. (IF 3.554) Pub Date : 2023-10-07 Chun Keung Hoi, Yun Ke, Qiang Wu, Hao Zhang
We find that social capital, as captured by associational networks and social norms in US counties where corporate headquarters are located, is positively associated with cash dividend payouts in local firms. The positive effect is incremental to other known local factors affecting dividends, is robust to a range of sensitivity analyses, and extends to corporate decisions about whether to pay dividends
-
Financial Stability and Public Confidence in Banks J. Financ. Stab. (IF 3.554) Pub Date : 2023-10-07 Lucy Chernykh, Denis Davydov, Jukka Sihvonen
We use a novel, household opinion-based measure – Public Confidence in a Bank – to explore the role of bank-level and industry-level determinants of retail customers’ trust in commercial banks. Our study tracks bank-month confidence measures during the 1/1/2010–1/1/2019 period in an unbalanced sample of 181 closely monitored large Russian banks that collectively account for the supermajority of the
-
Central bank digital currencies and financial stability in a modern monetary system J. Financ. Stab. (IF 3.554) Pub Date : 2023-10-07 David Tercero-Lucas
The aim of this study is to disentangle the effects of introducing an interest-bearing central bank digital currency (CBDC) for financial stability using a Diamond and Dybvig (1983) model in which (i) both CBDC and private bank deposits can be used in exchange and (ii) liquidity is created endogenously. Agents have direct access to a CBDC, which is a claim on the central bank. They use both sight deposits
-
Global lending conditions and international coordination of financial regulation policies J. Financ. Stab. (IF 3.554) Pub Date : 2023-09-27 Enisse Kharroubi
Using a model of strategic interactions between two countries, I investigate the gains to international coordination of financial regulation policies, and how these gains depend on global lending conditions. When one region – the core – sets global lending conditions, I show that coordinating regulatory policies makes the two regions better-off relative to the case of no cooperation. Global lending
-
Gender diversity in leadership: Empirical evidence on firm credit risk J. Financ. Stab. (IF 3.554) Pub Date : 2023-09-23 Iness Aguir, Narjess Boubakri, Miriam Marra, Lu Zhu
We study the relation between firm financial stability and gender diversity in leadership and highlight its dependence on the initial financial conditions of the firm and the role played by the women leaders. Consistent with the glass cliff and the upper echelon theories, we find that close-to-default firms are more likely to appoint women top executives and that under their leadership, subsequent
-
Who consumes the credit union subsidies? J. Financ. Stab. (IF 3.554) Pub Date : 2023-08-28 John Goddard, Donal G. McKillop, John O.S. Wilson
Credit unions in the United States (US) are exempt (benefit from subsidies) from federal corporate income taxes, which are traditionally justified by their non-profit cooperative status and mission of meeting the financial needs of individuals of modest means. In recent years, the efficacy and fairness of these subsidies has been debated extensively as the traditional demarcation between banks and
-
Optimal capital ratios for banks in the euro area J. Financ. Stab. (IF 3.554) Pub Date : 2023-08-19 Beau Soederhuizen, Gerrit Hugo van Heuvelen, Rob Luginbuhl, Bert van Stiphout-Kramer
In this paper we estimate the optimal level of capital for banks in the euro area. This optimum is the result of a trade-off between the costs and benefits of more bank capital: although higher capital requirements likely lead to higher lending rates, they also reduce the likelihood of banking crises. Our baseline estimates show an optimal risk-weighted capital ratio of around 23%. By varying the assumptions
-
How does dividend payout affect corporate social responsibility? A channel analysis J. Financ. Stab. (IF 3.554) Pub Date : 2023-08-09 Zeyu Sun, Xiaohui Li, Jing Xie, C.S. Cheng
We find that dividend paying firms demonstrate superior corporate social responsibility (CSR) performance in the subsequent year than non-paying firms. This effect can be explained by stakeholder relationship management through CSR, as dividend payout reflects the inherent conflict between shareholders and stakeholders. Specifically, for dividend payers, we find an increase in CSR performance after
-
Networks, interconnectedness, and interbank information asymmetry J. Financ. Stab. (IF 3.554) Pub Date : 2023-07-28 Celso Brunetti, Jeffrey H. Harris, Shawn Mankad
We explore interconnectedness in the interbank overnight lending market and propose the liquidity network and the urgent borrower network which capture the urgency to trade. The liquidity network connects the initiating party in a trade to the passive party, while the urgent borrower network connects passive sellers (lenders) to urgent buyers (borrowers). Along with the buyer/seller trading network
-
Interest rate pass-through and bank risk-taking under negative-rate policies with tiered remuneration of central bank reserves J. Financ. Stab. (IF 3.554) Pub Date : 2023-07-24 Christoph Basten, Mike Mariathasan
We identify the effects of negative rates on bank behavior using difference-in-differences identification. First, we find that going negative can interrupt not only the pass-through from policy to deposit but also to mortgage rates. To preserve their deposit franchise, banks finance negative deposit with increased mortgage spreads, the more the bigger their market power. Second, negative rates on reserves
-
Corporate social responsibility misconduct and formation of board interlocks J. Financ. Stab. (IF 3.554) Pub Date : 2023-07-20 Yujie Wang, Albert Tsang, Yi Xiang, Daifei (Troy) Yao
Corporate social responsibility (CSR) misconduct often negatively impacts firms and damages their reputation. Using data on U.S. listed firms from 2002 to 2018, we demonstrate that firms are more likely to establish board interlocks with firms that have better CSR performance after a CSR-related violation than with other firms. Furthermore, this relationship is more pronounced in violating firms that
-
Bank solvency stress tests with fire sales J. Financ. Stab. (IF 3.554) Pub Date : 2023-07-20
We present a new framework combining current methods of bank solvency stress tests with a model of fire sales. We apply the framework to the stress tests conducted by the European Banking Authority. Fire sales are described by an equilibrium model balancing leverage improvements and drops in security prices. Additional bank losses caused by fire sales are significant and go beyond the trivial fact
-
Optimal monetary policy under bounded rationality J. Financ. Stab. (IF 3.554) Pub Date : 2023-07-18 Jonathan Benchimol, Lahcen Bounader
We develop a behavioral New Keynesian model to analyze optimal monetary policy with heterogeneously myopic households and firms. Five key results are derived. First, our model reflects coherent microeconomic and aggregate myopia due to the consistent transition from subjective to objective expectations. Second, the optimal monetary policy entails implementing inflation targeting in a framework where
-
Deal! Market reactions to the agreement on the EU Covid-19 recovery fund J. Financ. Stab. (IF 3.554) Pub Date : 2023-07-17 Livia Pancotto, Owain ap Gwilym, Philip Molyneux
In response to the Covid-19 crisis, EU leaders agreed on the creation of a €750bn recovery fund (the Next Generation EU, NGEU). We investigate the short-term impact of this landmark deal on bank stocks, sovereign credit default swaps (CDS) and bank CDS. First, we find that stock market investors firmly welcomed the agreement as we find sizeable positive abnormal returns in bank stocks as a response
-
Bank resolution mechanisms revisited: Towards a new era of restructuring J. Financ. Stab. (IF 3.554) Pub Date : 2023-07-15 Aneta Hryckiewicz, Natalia Kryg, Dimitrios P. Tsomocos
Government interventions as a solution to systemic banking crises continue to receive wide criticism. The new regulatory frameworks advocate banks’ bail-ins and resolutions that do not require governments’ involvement. However, as the recent events with Credit Suisse and Silicon Valley Bank show, the government still plays an active role in rescuing and resolving the bank's problems. We use the financial
-
Poverty and seeking bank advice: Evidence from a survey experiment J. Financ. Stab. (IF 3.554) Pub Date : 2023-07-07 Manthos DELIS, Emilios GALARIOTIS, Maria IOSIFIDI, Jerome MONNE
Access to banking services for the poorest individuals is key to reducing their vulnerability, but are poor people likely to seek help from bank advisors? This study tests the hypothesis that poor peoples’ financial concerns affect their willingness to seek professional financial advice from banks. A survey experiment is run by performing “hard priming” (a €2000 car repair expense) on a treatment group