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Author: Ilhyock Shim
Publisher:
ISBN:
Category :
Languages : en
Pages : 244
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Author: Ilhyock Shim
Publisher:
ISBN:
Category :
Languages : en
Pages : 244
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Author: Tirupam Goel
Publisher:
ISBN:
Category :
Languages : en
Pages : 125
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The broad goal of this dissertation is to further our understanding of the relationship between real and financial sectors of an economy, to identify inefficiencies in financial sector intermediation, and to design financial regulation policies that can address these inefficiencies. The three chapters of this dissertation contribute to specific aspects of the above goal. In the first chapter, I develop a general equilibrium macroeconomic model with a dynamic banking sector in order to characterize optimal size-dependent bank leverage regulation. Bank leverage choices are subject to the risk-return trade-off, and are inefficient due to financial frictions. I show that leverage regulation can generate welfare gains, and that optimal regulation is tighter relative to the benchmark and is bank-size dependent. In particular, optimal regulation is tighter for large banks relative to small banks, and it leads to the following welfare generating effects. First, as small banks take more leverage, they grow faster conditional on survival, leading to a selection effect. Second, small bank failures are less costly while entrants have higher relative efficiency, leading to a cleansing effect. Third, tighter regulation for large banks reduces their failure rate, which generates welfare since large banks are more efficient and costlier to replace, leading to a stabilization effect. The calibrated model rationalizes various steady state moments of the US banking industry, and points towards qualitatively similar but quantitatively tighter leverage regulation relative to the proposition in Basel III accords. In the second chapter, I study the financial contagion problem when banks in order to hedge against idiosyncratic shocks, engage in two-dimensional as opposed to one-dimensional interactions with other banks. To this end, I develop a double-edge interbank network model where banks engage in debt contract and securitization transactions with other banks. I show that the standard intuition of financial contagion does not translate from the one-dimensional case to the two-dimensional case i.e. financial contagion can either weaken or worsen depending on the network and parameter configuration. In particular, I derive parametrization for the case where financial contagion worsens. In the third chapter, we investigate whether countercyclical capital-ratio regulation (CCR) should be implemented strictly as a rule, or whether regulators should have discretion with respect to the timing and magnitude of changes in capital-ratio requirement. Using a simple model we prove the proposition that under information asymmetry, discretionary CCR leads to an increase in policy uncertainty relative to rule-based CCR. We prove a similar proposition for a general finite-horizon economy. Finally, we document that since discretionary CCR enables the regulator to respond to unexpected shocks, a benevolent regulator faces the welfare trade-off while choosing between rule-based and discretionary CCR.
Author: Gerhard Hambusch
Publisher: ProQuest
ISBN: 9780549932703
Category : Banks and banking
Languages : en
Pages : 306
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The field of financial optimization combines financial valuation approaches and economic optimization models. Most applications are characterized by dynamic settings where decisions over time are subject to many facets of uncertainty. Characterizing optimal decision making in these settings is of upmost importance in many areas of economic policy. The purpose of this research is to investigate economic policy issues in natural resource management and banking regulation through the application of methods of financial dynamic optimization under uncertainty in three essays: The first essay develops a general optimal stopping real option model for the management of mean reverting losses subject to stochastic jumps as an American call option. The model is numerically solved using the explicit finite difference method and provides comparative static results that reveal an important relationship between the two process parameters long run mean level of losses and speed of mean reversion which influence the termination value and therefore, the optimal stopping results. The second essay applies the optimal stopping real option model developed in the first essay as an environmental control investment analysis tool to manage uncertain future invasive species damages. Based on application size, control strategy, and level of control effectiveness, separate policy menus are developed that provide optimal investment rules by reporting critical invader damage, real option, and time values for five selected scenarios. The analysis demonstrates the effects of different control strategy levers and reveals that negative skewness of the jump distribution has an effect on the policy results. The third essay analyzes the impact of capital requirement regulation on the risk taking behavior of value maximizing banks using a financial intermediation model. The paper investigates four cases of intertemporal effects of capital regulation on risk choices when banks face different regulatory conditions. The results reveal differences in a bank's risk taking behavior based on profit, multiplier, and leverage effects. The interrelationship of retention rate, discount factor, and risky asset return has important implications for first and/or second best regulation. An optimal regulation rule is derived and three alternative regulation tools are characterized.
Author: Roy Zilberman
Publisher:
ISBN:
Category :
Languages : en
Pages :
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Author: Shu Hwa Chih
Publisher:
ISBN:
Category :
Languages : en
Pages :
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Author: Gerald A. Epstein
Publisher: Edward Elgar Publishing
ISBN: 1783472642
Category : Business & Economics
Languages : en
Pages : 391
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The many forces that led to the economic crisis of 2008 were in fact identified, analyzed and warned against for many years before the crisis by economist Jane D�Arista, among others. Now, writing in the tradition of D�Arista's extensive work, the
Author: Fazelina Sahul Hamid
Publisher: LAP Lambert Academic Publishing
ISBN: 9783659227646
Category :
Languages : en
Pages : 156
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This book aims to answer a few key questions that are relevant in banking. Firstly, it aims to find if CAMEL-type indicators are able to predict subsequent decisions by regulators to fail banks. Secondly, it aims to find if depositors discipline banks by focusing on depositors' reaction to the price signal and the amount of risk-related information that banks disclose. The findings show that banks' probability of failure increases as a result of high reliance on external funding and depositors in East Asia are not sensitive to price signal but they are sensitive to the amount of information disclosure. This study also finds that depositors in East Asia reward good banks for disclosing more information but they do not discipline weak banks by demanding greater disclosure. This implies that disclosure is a more effective signal for healthy banks than for weak ones. These analyses provide support to the proposition of the third pillar of the Basel II which aims to encourage market discipline by requiring banks to disclose more risk-related information. This book should be especially useful to banks and banking regulators.
Author: Syed Faizan Iftikhar
Publisher:
ISBN:
Category :
Languages : en
Pages :
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Author: Nataliya Pakhomova
Publisher:
ISBN:
Category :
Languages : en
Pages : 151
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This dissertation consists of 3 self-contained theoretical essays.Essay 1 brings into focus the problem of "manufacturing" tail risk in the banking sector. This work shows that, in order to prevent banks from engaging in tail risk, bank capital regulation should account for the internal agency problem between bank shareholders and bank top managers. It is proposed to design bank capital requirements in the form of incentive-based recapitalization mechanism which would induce bank shareholders to shape executive compensation in such a way as to prevent top managers from engaging in tail-risk.Essay 2 deals with the problem of moral hazard in bank asset management. It proposes the concept of incentive-based bank supervision aimed at preventing moral hazard at a minimum cost to the regulator. It is shown that the intensity of supervision efforts should be gradually adjusted to the bank's financial health: banks in the mild form of distress should be subject to random audits, whereas deeply distressed banks should be placed under temporary regulatory control. To prevent double moral hazard, external auditors involved in supervision should be offered the optimal incentive contract.Essay 3 examines the impact of credit rationing (debt capacity) on corporate investment in the setting with costly debt financing. It is shown that, when credit constraints are binding, the firms with intermediate levels of debt capacity will establish larger investment projects than the firms with relatively low or high debt capacity. This non-monotonicity of investment on debt capacity arises due to the effect of the lump-sum debt issuance costs in the dynamic context of investment.
Author: Matic Petriček
Publisher:
ISBN:
Category : Banks and banking
Languages : en
Pages : 55
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This thesis studies bank behaviour in response to financial regulation and monetary policy. In the first chapter a novel approach to address issues of endogeneity in estimating a causal effect of leverage on risk taking by banks is used. By using data on local bank office deposits and local unemployment an instrument is constructed to use in a regression of leverage on a measure of risk taking constructed from new issuance of loans. The results are consistent with a theoretical prediction that due to limited liability banks increase their risk taking after an exogenous increase in leverage. The second chapter estimates the effect of deposit insurance on the risk-taking behaviour of banks. As shown in the theoretical literature, deposit insurance may induce moral hazard and incentivise banks to take on more risk. This chapter provides an experimental setup in which an increase in the coverage limit of deposit insurance in the U.S. is exploited in order to identify the difference in risk taking by banks that were affected and banks that were not. This difference comes from the fact that state chartered savings banks in Massachusetts had unlimited deposit insurance coverage at the time when it was increased for all other banks in the US. Given that all banks in the sample are subject to the same regulatory and supervisory requirements, and that they are similar in other characteristics, the effect of such increase in deposit insurance can be isolated. The findings suggest that, contrary to the literature, an increase in deposit insurance did not increase bank risk-taking, nor did it affect market discipline, evident through a lack of effect on deposit rates. Motivated by substantial differences in employment dynamics across different geographical areas and substantial differences across banks which operate in these geographical areas, the third chapter estimates the effect of characteristics of banks operating in a particular location on the impact of monetary policy on the local economic outcomes. The results suggest that the effect of monetary policy on local employment and local total payroll intensifies as the capital structure of local banks improves and the credit risk associated with local banks decreases. These findings go in line with a prediction that healthy banks find it easier to attain alternative sources of funding following a monetary tightening. The results also show that size and liquidity position of local banks does not affect the impact of monetary policy.
