Bank Profitability and Risk-Taking PDF Download
Are you looking for read ebook online? Search for your book and save it on your Kindle device, PC, phones or tablets. Download Bank Profitability and Risk-Taking PDF full book. Access full book title Bank Profitability and Risk-Taking by Natalya Martynova. Download full books in PDF and EPUB format.
Author: Natalya Martynova
Publisher: International Monetary Fund
ISBN: 1513565818
Category : Business & Economics
Languages : en
Pages : 44
Get Book Here
Book Description
Traditional theory suggests that more profitable banks should have lower risk-taking incentives. Then why did many profitable banks choose to invest in untested financial instruments before the crisis, realizing significant losses? We attempt to reconcile theory and evidence. In our setup, banks are endowed with a fixed core business. They take risk by levering up to engage in risky ‘side activities’(such as market-based investments) alongside the core business. A more profitable core business allows a bank to borrow more and take side risks on a larger scale, offsetting lower incentives to take risk of given size. Consequently, more profitable banks may have higher risk-taking incentives. The framework is consistent with cross-sectional patterns of bank risk-taking in the run up to the recent financial crisis.
Author: Natalya Martynova
Publisher: International Monetary Fund
ISBN: 1513565818
Category : Business & Economics
Languages : en
Pages : 44
Get Book Here
Book Description
Traditional theory suggests that more profitable banks should have lower risk-taking incentives. Then why did many profitable banks choose to invest in untested financial instruments before the crisis, realizing significant losses? We attempt to reconcile theory and evidence. In our setup, banks are endowed with a fixed core business. They take risk by levering up to engage in risky ‘side activities’(such as market-based investments) alongside the core business. A more profitable core business allows a bank to borrow more and take side risks on a larger scale, offsetting lower incentives to take risk of given size. Consequently, more profitable banks may have higher risk-taking incentives. The framework is consistent with cross-sectional patterns of bank risk-taking in the run up to the recent financial crisis.
Author: Whelsy Boungou
Publisher:
ISBN:
Category :
Languages : en
Pages :
Get Book Here
Book Description
Author: Andreas Jobst
Publisher: International Monetary Fund
ISBN: 1475524471
Category : Business & Economics
Languages : en
Pages : 48
Get Book Here
Book Description
More than two years ago the European Central Bank (ECB) adopted a negative interest rate policy (NIRP) to achieve its price stability objective. Negative interest rates have so far supported easier financial conditions and contributed to a modest expansion in credit, demonstrating that the zero lower bound is less binding than previously thought. However, interest rate cuts also weigh on bank profitability. Substantial rate cuts may at some point outweigh the benefits from higher asset values and stronger aggregate demand. Further monetary accommodation may need to rely more on credit easing and an expansion of the ECB’s balance sheet rather than substantial additional reductions in the policy rate.
Author: Florian Urbschat
Publisher:
ISBN:
Category :
Languages : en
Pages :
Get Book Here
Book Description
The recent negative interest rate policy (NIRP) and quantitative easing (QE) programme by the ECB have raised concerns about the pass-through of monetary policy. On the one hand, negative rates could lead to declining bank profitability making an expansionary monetary policy contractionary. Also, if interest rates are too low for too long banks could be induced to take too much risky credit. On the other hand, several economists argue that there is nothing special about negative interest rates per se. This paper uses a large micro level data set of the German bank universe to examine how banks behave in this uncharted territory. The evidence found suggests that bank's business model, i.e. the share of overnight deposits, plays a crucial role. While some banks may benefit in the short run via for instance reduced refinancing costs or lower loan loss provisions, many banks with high deposit ratios face lower net interest income and lower credit growth rates. If continued for too long QE and NIRP erode bank profits for most banks eventually.
Author: Luís Brandão Marques
Publisher: International Monetary Fund
ISBN: 1513570080
Category : Business & Economics
Languages : en
Pages : 84
Get Book Here
Book Description
This paper focuses on negative interest rate policies and covers a broad range of its effects, with a detailed discussion of findings in the academic literature and of broader country experiences.
Author: Mr.Gee Hee Hong
Publisher: International Monetary Fund
ISBN: 148436161X
Category : Business & Economics
Languages : en
Pages : 50
Get Book Here
Book Description
In this paper, we investigate how negative interest rate policy (NIRP) introduced in January 2016 by the Bank of Japan (BoJ) affected Japanese banks' lending and risk taking behavior. The BoJ's announcement was an unexpected surprise to the market and was followed by a sharp drop in equity prices of Japanese financial firms. We exploit the cross-sectional variation in the change of share prices on the day of the announcement to measure banks' differential exposure to NIRP. We show that more exposed banks increased their credit and took on more risk compared to banks that were less exposed to negative rates.
Author: Mr.Giovanni Dell'Ariccia
Publisher: International Monetary Fund
ISBN: 1484381130
Category : Business & Economics
Languages : en
Pages : 41
Get Book Here
Book Description
We present evidence of a risk-taking channel of monetary policy for the U.S. banking system. We use confidential data on the internal ratings of U.S. banks on loans to businesses over the period 1997 to 2011 from the Federal Reserve’s survey of terms of business lending. We find that ex-ante risk taking by banks (as measured by the risk rating of the bank’s loan portfolio) is negatively associated with increases in short-term policy interest rates. This relationship is less pronounced for banks with relatively low capital or during periods when banks’ capital erodes, such as episodes of financial and economic distress. These results contribute to the ongoing debate on the role of monetary policy in financial stability and suggest that monetary policy has a bearing on the riskiness of banks and financial stability more generally.
Author:
Publisher: Lulu.com
ISBN: 9291316695
Category : Bank capital
Languages : en
Pages : 294
Get Book Here
Book Description
Author: Mr.Gee Hee Hong
Publisher: International Monetary Fund
ISBN: 1484363167
Category : Business & Economics
Languages : en
Pages : 50
Get Book Here
Book Description
In this paper, we investigate how negative interest rate policy (NIRP) introduced in January 2016 by the Bank of Japan (BoJ) affected Japanese banks' lending and risk taking behavior. The BoJ's announcement was an unexpected surprise to the market and was followed by a sharp drop in equity prices of Japanese financial firms. We exploit the cross-sectional variation in the change of share prices on the day of the announcement to measure banks' differential exposure to NIRP. We show that more exposed banks increased their credit and took on more risk compared to banks that were less exposed to negative rates.
Author: Margherita Bottero
Publisher: International Monetary Fund
ISBN: 1498300855
Category : Business & Economics
Languages : en
Pages : 59
Get Book Here
Book Description
We study negative interest rate policy (NIRP) exploiting ECB's NIRP introduction and administrative data from Italy, severely hit by the Eurozone crisis. NIRP has expansionary effects on credit supply-- -and hence the real economy---through a portfolio rebalancing channel. NIRP affects banks with higher ex-ante net short-term interbank positions or, more broadly, more liquid balance-sheets, not with higher retail deposits. NIRP-affected banks rebalance their portfolios from liquid assets to credit—especially to riskier and smaller firms—and cut loan rates, inducing sizable real effects. By shifting the entire yield curve downwards, NIRP differs from rate cuts just above the ZLB.
