a conference on postcrisis banking this essay provides an introduction to the special issue we focus on four themes which are important for policymakers and researchers alike in view of the experiences of the global financial crisis of 2007 2009 and the ensuing sovereign debt crisis in the euro area the relevance of the banking sector for the real economy the future structure and regulation of the banking sector the efficacy of past and current regulatory reforms and the impact of crossborder banking on economic stability and financial development

banking sector globalization and monetary policy transmission evidence from asian countries abstract cetorelli and goldberg 2012a have shown that u s global banks those with foreign subsidiaries can smooth the effects of monetary policy tightening on their lending through drawing on subsidiary resources giving a hampering of policy transmission in panel data for asian banks we find strong evidence of the hampering of policy transmission to interest rates on bank loans and weaker evidence of hampering in transmission to lending quantities we also present evidence that financial interdependence within global banks is consistent with the internal capital markets hypothesis that underpins reduced transmission of monetary policy in a globalized banking system

taming macroeconomic instability monetary and macro prudential policy interactions in an agent based model abstract we develop an agent based model to study the macroeconomic impact of alternative macro prudential regulations and their possible interactions with different monetary policy rules the aim is to shed light on the most appropriate policy mix to achieve the resilience of the banking sector and foster macroeconomic stability simulation results show that a triple mandate taylor rule focused on output gap inflation and credit growth and a basel iii prudential regulation is the best policy mix to improve the stability of the banking sector and smooth output fluctuations moreover we consider the different levers of basel iii and their combinations we find that minimum capital requirements and counter cyclical capital buffers allow to achieve results close to the basel iii first best with a much more simplified regulatory framework finally the components of basel iii are non additive the inclusion of an additional lever does not always improve the performance of the macro prudential regulation

implementing efficient allocations in a model of financial intermediation abstract in a finite trader version of the diamond and dybvig j polit econ 91 1983 401 model the ex ante efficient allocation is implementable by a direct mechanism i e each trader announces the type of his own ex post preference in which truthful revelation is the strictly dominant strategy for each trader when the model is modified by formalizing the sequential service constraint cf wallace fed reserve bank minneapolis quart rev 12 1988 3 the truth telling equilibrium implements the symmetric ex ante efficient allocation with respect to iterated elimination of strictly dominated strategies

nonmonetary effects of the financial crisis in propagation of the great depression this paper examines the effects of the financial crisis of the 1930s onthe path of aggregate output during that period our approach is complementary to that of friedman and schwartz who emphasized the monetary impact of the bank failures we focus on non monetary primarily credit related aspects of the financial sector output link and consider the problems of debtors as well as those of the banking system we argue that the financial disruptions of 1930 33 reduced the efficiency of the credit allocation process and that the resulting higher cost and reduced availability of credit acted to depress aggregate demand evidence suggests that effects of this type can help explain the unusual length and depth of the great depression this abstract was borrowed from another version of this item

the impact of usury ceilings on consumer credit usury regulation is a topic with a long history of discussion nevertheless the debate over the merits of usury regulation continues to the present day in the early part of the 1980s the rapid rise in nominal interest rates swung the debate in favor of the opponents of usury ceilings during this period a quarter of the states enacted legislation which largely eliminated their usury ceilings on consumer credit however with the return of lower interest rates in the middle part of the decade the argument for low usury ceilings gained increasing support and as a result several states lowered their usury ceilings on some types of credit the first formal economic model of the impact of usury ceilings was outlined by blitz and long 8 their insightful analysis has led researchers to focus on two hypotheses concerning the impact of usury ceilings on consumer credit hypothesis 1 usury ceilings reduce the quantity of credit obtained by high risk borrowers

on cross border bank credit and the u s financial crisis transmission to equity markets this paper examines the role played by cross border equity bond and bank credit flows versus international trade in the transmission of the u s financial crisis to equity markets worldwide we estimate vector autoregressive models with exogenous global factors using monthly data on 36 emerging and developed countries the results from an eclectic methodology that includes causality tests generalized impulse responses and forecast error variance decompositions indicate that the crisis is mostly transmitted through bank credit rather than portfolio flows and international trade the results are robust to altering the exogenous versus endogenous vectors of variables to measuring equity prices in u s dollars or local currency to averaging the data across countries versus averaging the parameters from individual country estimation and to redefining the start date of the crisis the findings endorse the use of banking regulation and capital controls as part of the policy toolkit to limit financial vulnerability

consequences of bank distress during the great depression the consequences of bank distress for the economy during the depression remain an area of unresolved controversy since john m keynes 1931 and irving fisher 1933 macroeconomists have argued that bank distress magnified the extent of the economic decline during the depression as the intermediaries controlling money and credit banks were in a special position to transmit their distress to other sectors but the mechanism through which banking distress mattered for the economy has been hotly contested milton friedman and anna j schwartz 1963 saw the contraction in the money multiplier driven in their view by panicked depositors withdrawals of deposits as the primary mechanism through which banking distress affected the real economy they described the mechanism transmitting banking distress to the real sector as operating at the national level through changes in the aggregate supply of money and interest rates bank distress reduced the money supply available to the public either through the closure of banks and the consequent freezing of bank deposits or the withdrawals of deposits by depositors that feared bank failure ben s bernanke 1983 building on fisher 1933 emphasized the transmission of monetary shocks via their effects on the balance sheets of borrowers and on the supply of credit by banks borrowers balance sheets were worsened by debt deflation as the result of fixed dollar debt obligations borrowers net worth and cash flow declined with the rising value of debt service costs relative to income borrowers with positive net present value projects but weak balance sheets had less internally generated retained earnings to invest and could not qualify for credit furthermore bernanke argued that the contraction of the money supply produced contraction of nominal income and prices relative to fixed debt service which weakened borrowers balance sheets and in turn weakened banks not only did firms financial distress reduce the number of qualified borrowers the contraction in banks net worth forced a reduction in the supply of bank loans to qualified borrowers many firms and individuals relied on banks for credit and as those banks suffered losses of capital due to asset value declines and contractions in deposits as depositors reacted to bank weakness by withdrawing their funds even borrowers with viable projects and strong balance sheets experienced a decrease in the effective supply of loanable funds bernanke termed the combined weakening of borrowers balance sheets and the contraction in bank credit supply a rise in the cost of credit intermediation the scarcity of perfect substitutes for the positive net present value investments of firms with weak balance sheets and for the credit supplied by existing banks implies that the weakening of firms and banks balance sheets the disappearance of banks and the contraction in surviving banks lending made it more difficult for the economy to channel funds to their best use thus what began as a contraction in aggregate demand became a contraction in aggregate supply which magnified adverse economic shocks and prolonged and deepened the depression the financial distress of firms and banks and the decline in bank lending were not only symptoms of the depression but means for magnifying the shocks that caused the depression bernanke s statistical evidence in support of this story is derived from time series analysis at the national level in calomiris graduate school of business 601 uris hall columbia university 3022 broadway new york ny 10027 and national bureau of economic research e mail cc374 columbia edu mason department of finance drexel university 3141 chestnut street philadelphia pa 19104 e mail joe mason drexel edu we thank valerie ramey david wheelock charles himmelberg steve zeldes gary gorton two referees and seminar participants at columbia university wharton northwestern university and the 2001 economic history association meetings for helpful comments on an earlier draft we gratefully acknowledge support from the national science foundation the university of illinois and the federal reserve bank of st louis

macroprudential policies capital flows and the structure of the banking sector abstract using a large sample of advanced and emerging market economies over the period 1999 2012 we examine the effectiveness of macroprudential policies mpps in managing cross border bank flows conditioning on the structure of the banking sector in the mpp implementing country we find that higher regulatory quality and a higher credit to deposit ratio increase the effectiveness of mpps while a higher cost to income ratio has the opposite effect if all three financial variables are evaluated at the median the marginal effect of our preferred mpp measure leads to a reduction of international bank inflows in percent of gdp by around half a percentage point and is only marginally significant however when the more enhanced 25th 10th percentiles of their respective distributions are considered we observe as a response to the same mpp measure a reduction of bank inflows by 3 44 5 39 percentage points that is highly statistically and economically significant additionally we find that the structure of the domestic banking sector determines spillovers from mpps across asset classes while spillovers from mpps across countries are a function of banking sector conditions both at home and abroad

spillovers through banking centers a panel data analysis of bank flows abstract this paper presents evidence that spillovers through bank lending contributed to the transmission of currency crises during the recent episodes of financial instability in emerging markets the innovation of the paper is that it looks beyond aggregated measures of contagion into the structure of bank flows disaggregating by banking centers the main findings are that spillovers caused by banks exposures to a crisis country help predict flows in third countries after the mexican and asian crises but not after the russian crisis in the latter there is evidence of a generalized outflow from emerging markets the importance of spillovers through banking centers suggests that countries might reduce contagion risk by diversifying the sources of their financing and by carefully monitoring borrowing from creditors exposed to potential crisis countries

on avoiding bank runs abstract can bank runs be avoided and should they be avoided i analyze a banking environment where bank runs can occur as a result of negative signals about the bank s investments in this environment banks can make sure that runs do not occur by designing the deposit contract appropriately i show that there are conditions under which it is profit maximizing for the bank to avoid runs and others under which occasional runs are part of optimal bank behavior i also compare the banking arrangement to an arrangement based on trading in equity

internal capital markets and the competition for corporate resources this article examines the role of corporate headquarters in allocating scarce resources to competing projects in an internal capital market unlike a bank headquarters has control rights that enable it to engage in winner picking the practice of actively shifting funds from one project to another by doing a good job in the winner picking dimension headquarters can create value even when it cannot help at all to relax overall firm wide credit constraints the model implies that internal capital markets may sometimes function more efficiently when headquarters oversees a small and focused set of projects this article analyzes the process by which internal capital markets channel limited resources to different uses inside a company in so doing it seeks to address two related sets of questions first what is the fundamental economic rationale for creating an internal capital market that is under what circumstances can it make sense to combine several technologically distinct projects under one roof and have them seek funding from corporate headquarters as opposed to setting them up as stand alone companies that each raise external financing on their own second given this rationale what is the optimal size and scope of an internal capital market should headquarters be involved in funding a large number of projects or just a few and should these projects be unrelated to one another or in similar lines of business the answers to both sets of questions flow from the insight that in a credit constrained setting where not all positive npv projects can be financed headquarters can create value by actively reallocating scarce funds across projects for example the cash flow generated by one division s activities may be taken and spent on investment in another division where the returns are higher or alternatively one division s assets may be used as collateral to raise financing that is then diverted to the other division simply put individual projects must compete for the scarce funds and headquarters job is to pick the winners and losers in this competition

on a tight leash does bank organizational structure matter for macroprudential spillovers abstract this paper examines whether the organizational form of multinational banks foreign affiliates affects cross border spillovers of macroprudential regulation we compare changes in the growth of lending provided by foreign banks branches versus subsidiaries in the united kingdom in response to changes in capital requirements lending standards and reserve requirements in foreign banks home countries our results suggest that a tightening of capital requirements at home reduces uk branches interbank lending growth by 5 7 pp more relative to subsidiaries we link this effect to the higher degree of control which parent banks hold over operations of their foreign branches compared to subsidiaries supporting this hypothesis a set of further tests illustrates that the response of foreign affiliates operating under a branch structure is stronger where parent banks are more likely to delegate more decision making authority to the board of directors of their subsidiaries

international monetary relations taking finance seriously in our book global capital markets integration crisis and growth we traced out the evolution of the international monetary system using the framework of the international monetary trilemma countries can enjoy at most two from the set exchange rate stability open capital markets and domestic monetary autonomy the events of the past decade or more highlight the further complications for this framework posed by financial stability issues here we update and qualify our prior analysis drawing on recent experience and research under the classical gold standard scant attention was paid to macro management either to stabilize output and employment or to ensure financial stability the interwar years highlighted the changing demands for modern central bank interventions in the economy financial instability followed by wwii left a world with sharply constricted financial markets and little private cross border capital mobility due to this historical accident the bretton woods system agreed in 1944 focused not at all on financial stability and focused on issues like adjustment exchange rate misalignment and international liquidity defined in terms of official not private capital account transactions post 1970s floating rates permitted but did not require liberalization of the capital account but the political equilibrium had shifted in favor of financial interests signaled by the push toward european integration and the later reform process in emerging markets starting in the 1990s this development however opened the door once again to domestic financial crises and their international transmission countries now become more susceptible to a new species of capital account crises fueled by bank and bond lending and its sudden withdrawal these developments in fact made evident a different financial trilemma countries can pick at most two from financial stability open capital markets and autonomy over domestic financial policy we distill the main lessons as to the interactions between the monetary and financial trilemmas and policies that could best address the resulting weaknesses

from financial crisis to great recession the role of globalized banks this paper provides evidence of the role of globalized banks in transmitting financial stresses to the real economy during the global financial crisis a novel dataset is constructed from quarterly balance sheet reports provided by all uk resident banks to the bank of england i find that the shock to bank funding from non resident creditors was transmitted domestically through a significant reduction in bank credit supply resident subsidiaries and branches of foreign owned banks reduced lending by a larger amount than domestically owned banks while the latter calibrated the reduction in domestic lending more closely to the size of the funding shock

trade finance specialization and synchronization i investigate the determinants of business cycle synchronization across regions the linkages between trade in goods financial openness specialization and business cycle synchronization are evaluated in the context of a system of simultaneous equations the main results are as follows i specialization patterns have a sizable effect on business cycles most of this effect is independent of trade or financial policy but directly reflects differences in gdp per capita ii a variety of measures of financial integration suggest that economic regions with strong financial links are significantly more synchronized even though they also tend to be more specialized iii the estimated role of trade is closer to that implied by existing models once intra industry trade is held constant the results obtain in a variety of data sets measurement strategies and specifications they relate to a recent strand of international business cycle models with incomplete markets and transport costs and on the empir

what do we know about the effects of macroprudential policy the literature on the effectiveness of macroprudential policy tools is still in its infancy and has so far provided only limited guidance for policy decisions in recent years however increasing efforts have been made to fill this gap progress has been made in embedding macroprudential policy in theoretical models there is increasing empirical work on the effect of some macroprudential tools on a range of target variables such as quantities and prices of credit asset prices and on the amplitude of the financial cycle and financial stability in this paper we provide a critical review of recent progress in theoretical and empirical research on the effectiveness of macroprudential instruments

credit constraints and the international propagation of us financial shocks abstract this paper investigates whether credit constraints in the us economy amplify the international propagation of us financial shocks we model the dynamics of the us economy jointly with global macroeconomic and financial variables using a threshold vector autoregression this model captures regime specific dynamics conditional on the severity of credit constraints in the us economy we identify three main episodes of tight credit in us financial history over the past thirty years these occur in the late 1980s in the early 2000s and during the 2007 09 financial crisis we find that us financial shocks are associated with a significant contraction in global economic activity in times of tight credit by contrast there is little impact of us financial shocks on the global economy in normal times this asymmetry highlights an international dimension of the us financial accelerator mechanism

usury laws and consumer credit a note much has been written on the potential effects of rate ceilings on consumer credit markets 1 and numerous empirical studies have analyzed the impact of rate ceilings on mortgage loans and housing construction markets 2 however the actual effect of loan rate ceilings on consumer financial markets in general has not been well documented in part because credit terms are complex so the credit offer function has several arguments notwithstanding the potential complexity of credit terms it is usually assumed that if a rate ceiling reduces the nominal price of credit p the market will fail to clear and excess credit demand will need to be rationed out of the market by adjusting credit terms other than the rate in this context most investigators assume first that the price of credit is solely a function of the interest rate r and second that required credit rationing is conducted by suppliers who reject risky customers or alter credit terms to reduce risk when credit obtained at the retail point of sale is considered however more options are available in particular the price of goods purchased with credit can be raised 3 thus a more general model of consumer credit would note that p p r pr where pr the price premium on goods purchased with credit since funds are highly fungible it is likely that consumers are able to substitute retail originated credit for other sources of consumer credit at low cost if portfolio adjustment costs were zero a rate ceiling could have no effect on consumer s total indebtedness as any decrease in r could be exactly offset by an increase in pr at retail credit sources so that p would remain unchanged however it is unlikely that all consumer credit needs can be met by obtaining retail credit so that consumer use of credit may be reduced by rate ceilings this would occur if consumers bore adjustment costs such as transportation costs when they switched from cash to retail credit sources that suppliers did not receive the question then arises whether when retail credit is available adjust

distance constraints the limits of foreign lending in poor economies how far does mobility of multinational banks solve problems of financial development using a panel of 80 000 loans over 7 years i show that greater cultural and geographical distance between a foreign bank s headquarters and local branches leads it to further avoid lending to informationally difficult yet fundamentally sound firms requiring relational contracting greater distance also makes them less likely to bilaterally renegotiate and less successful at recovering defaults differences in bank size legal institutions risk preferences or unobserved borrower heterogeneity cannot explain these results these distance constraints can be large enough to permanently exclude certain sectors of the economy from financing by foreign banks

the effects of usury laws evidence from the online loan market abstract usury laws cap the interest rates that lenders can charge using data from prosper com an online lending marketplace i investigate the effects of these laws the key to my empirical strategy is that there was initially substantial variability in states interest rate caps ranging from 6 to 36 a behind the scenes change in loan origination however suddenly increased the cap to 36 the main findings of the study are that higher interest rate caps increase the probability that a loan will be funded especially if the borrower was previously just outside the money i do not find however changes in loan amounts and default probability the interest rate paid rises slightly probably because online lending is substantially yet imperfectly integrated with the general credit market

effects of monetary and macroprudential policies evidence from four inflation targeting economies we examine the effects of monetary and macroprudential policies in the asia pacific region where many inflation targeting economies have adopted macroprudential policies in order to safeguard financial stability using structural panel vector autoregressions that identify both monetary and macroprudential policy actions we show that tighter macroprudential policies used to contain credit growth also have a significant negative impact on macroeconomic aggregates such as real gdp and the price level the similar effects of monetary and macroprudential policies may suggest a complementary use of the two policies at normal times however they could also create challenges for policymakers especially during times when low inflation coincides with buoyant credit growth

do consumers need more protection from small dollar lenders historical evidence and a roadmap for future research we summarize the current debate surrounding four small dollar credit products pawn loans vehicle title loans payday loans and cash installment loans from finance companies we review the contributions of scholars that inform this debate we underscore that users of these products fit the description of those whom consumer credit models predict benefit from these products many studies find that on average consumer use of small dollar credit products is at worst innocuous there are however findings of heterogeneity in borrowers experiences the disagreements surrounding these credit products and the difficulty in crafting the proper policy response stems from this heterogeneity jel d18 g23

the international transmission of monetary policy abstract this paper presents the novel results from an internationally coordinated project by the international banking research network ibrn on the cross border transmission of conventional and unconventional monetary policy through banks teams from seventeen countries use confidential micro banking data for the years 2000 through 2015 to explore the international transmission of monetary policies of the united states euro area japan and united kingdom two other studies use international data with different degrees of granularity international spillovers into lending to the private sector do occur especially for us policies and bank specific heterogeneity influences the magnitudes of transmission the effects are supportive of the international bank lending channel and the portfolio channel of monetary policy transmission they also show that the frictions that banks face matter in particular foreign currency funding and hedging considerations can be a key source of heterogeneity the forms of bank balance sheet heterogeneity that differentiate spillovers across banks are not uniform across countries international spillovers into lending can be large for some banks even while the average international spillovers of policies into nonbank lending generally are not large

does macro prudential regulation leak evidence from a uk policy experiment the regulation of bank capital as a means of smoothing the credit cycle is a central element of forthcoming macro prudential regimes internationally for such regulation to be effective in controlling the aggregate supply of credit it must be the case that i changes in capital requirements affect loan supply by regulated banks and ii unregulated substitute sources of credit are unable to offset changes in credit supply by affected banks this paper examines micro evidence lacking to date on both questions using a unique data set in the uk regulators have imposed time varying bank specific minimum capital requirements since basel i it is found that regulated banks uk owned banks and resident foreign subsidiaries reduce lending in response to tighter capital requirements but unregulated banks resident foreign branches increase lending in response to tighter capital requirements on a relevant reference group of regulated banks this leakage is substantial amounting to about one third of the initial impulse from the regulatory change

cross country spillovers from macroprudential regulation reciprocity and leakage abstract in a globally interconnected banking system there can be spillovers from domestic macroprudential policies to foreign banks and vice versa for example through the presence of foreign branches in the domestic economy the lack of reciprocity of some macroprudential instruments may result in an increase in bank flows to those banks with lower regulatory levels a phenomenon known as leakage this may decrease the effectiveness of macroprudential policies in the pursuit of financial stability to explore this topic i consider a two country dsge model with housing and credit constraints borrowers can choose whether to borrow from domestic or foreign banks macroprudential policies are conducted at a national level and are represented by a countercyclical rule on the loan to value ratio results show that when there are some sort of reciprocity agreements on macroprudential policies across countries financial stability and welfare gains are larger than in a situation of non reciprocity an optimal policy analysis shows that in order to enhance the effectiveness of macroprudential policies reciprocity mechanisms are desirable although the foreign macroprudential rule does not need to be as aggressive as the domestic one

how banks go abroad branches or subsidiaries the authors examine the factors that influence banks type of organizational form when operating in foreign markets using an original database of the branches and subsidiaries in latin america and eastern europe of the top 100 international banks they find that regulation taxation the degree of desired penetration in the local market and host country economic and political risks matter banks are more likely to operate as branches in countries that have higher corporate taxes and when they face lower regulatory restrictions on bank entry in general and on foreign branches in particular subsidiaries are the preferred organizational form by banks that seek to penetrate the local market establishing large and mostly retail operations finally there is evidence that economic and political risks have opposite effects on the type of organizational form suggesting that legal differences in the degree of parent bank responsibility vis a vis branches and subsidiaries under different risk scenarios play an important role in the kind of operations international banks maintain overseas

time varying capital requirements and disclosure rules effects on capitalization and lending decisions we investigate how banks capital and lending decisions respond to changes in bank specific capital and disclosure requirements we find that an increase in the bank specific regulatory capital requirement results in a higher bank capital ratio brought about via less asset risk a decrease in the requirement implies more lending to firms but also less tier 1 capital and higher bank leverage we do not observe differences between confidential and public disclosure of capital requirements our results empirically illustrate a tradeoff between bank resilience and a fostering of the economy through more bank lending using banks capital requirement as policy instrument

the international transmission of financial shocks the case of japan one of the more dramatic financial events of the late 1980s and early 1990s was the surge in japanese stock prices that was immediately followed by a very sharp decline of more than 50 percent while the unprecedented fluctuations in japanese stock prices were domestic financial shocks the unique institutional characteristics of the japanese economy produce a framework that is particularly suited to the transmission of such shocks to other countries through the behavior of the japanese banking system the large size of japanese bank lending operations in the united states enables us to use u s banking data to investigate the extent to which this domestic japanese financial shock was transmitted to the united states as well as to identify a supply shock to u s bank lending that is independent of u s loan demand we find that binding risk based capital requirements associated with the decline in the japanese stock market resulted in a decline in commercial lending by japanese banks in the united states that was both economically and statistically significant this finding has added importance given the severe real estate loan problems currently faced by japanese banks how japanese bank regulators decide to resolve these problems will have significant implications for credit availability in the united states as well as in other countries with a significant japanese bank presence

fickle capital flows and retrenchment evidence from bilateral banking data abstract we empirically examine the response of cross border capital flows to economic uncertainty using bilateral banking flow data we show that while banks reduce their exposure to a foreign country when it becomes more risky they tend to increase their exposure to their home country in bad times a retrenchment to further understand this puzzle we examine how the differential response to foreign and domestic uncertainty is affected by country specific characteristics bilateral characteristics and crises our analysis suggests that most of the current theories based on either information asymmetries between foreign and domestic investors or institutional risk cannot explain bilateral data well on the other hand our results show that global crises have an asymmetric impact on the risk attitudes of banking institutions towards country specific uncertainty global crises make investors more risk averse towards foreign uncertainty but have no effect on the responsiveness to domestic uncertainty

the determinants of cross border equity flows abstract we explore a new panel data set on bilateral gross cross border equity flows between 14 countries 1989 1996 we show that a gravity model explains international transactions in financial assets at least as well as goods trade transactions gross transaction flows depend on market size in source and destination country as well as trading costs in which both information and the transaction technology play a role distance proxies some information costs and other variables explicitly represent information transmission an information asymmetry between domestic and foreign investors and the efficiency of transactions the geography of information is the main determinant of the pattern of international transactions while there is weak support in our data for the diversification motive once we control for the informational friction we broaden the scope of our results by presenting some evidence linking the results on equity transactions to equity holdings

conflicts of interest the ethics of usury social attitudes toward usury here defined using the archaic meaning as the taking of interest on loans have changed dramatically over the centuries from antiquity until the protestant reformation usury was regarded as an inherently evil activity today with few exceptions usury is met with moral indifference modern objections to usury are limited to protest against excessive interest rates rather than interest per se with this change in focus the very meaning of the term usury has also changed many early pronouncements against the taking of interest emphasized the plight of the poor but ironically the poor actually pay the highest rates of interest in the modern american economy despite the universality of usury some socio economic subcultures still manage to avoid the taking or giving of interest orthodox branches of both judaism and islam have maintained bans on usury throughout the centuries and up to the present time this is especially interesting in the case of judaism given the popular cultural image of the jew as usurer jewish free loan systems may actually offer a model for modern loan programs that can be designed to aid poor borrowers who are frequently shut out of mainstream financial services

are bank holding companies a source of strength to their banking subsidiaries i document evidence that a bank affiliated with a multi bank holding company mbhc is significantly safer than either a stand alone bank or a bank affiliated with a one bank holding company not only does mbhc affiliation reduce the probability of future financial distress but distressed affiliated banks are also more likely to receive capital injections recover more quickly and are less likely to fail over the next year moreover the measured benefits of affiliation are much larger than those that existed before recent reforms of bank holding company regulation suggesting that much of the observed benefit can be attributed to regulation and not the market

the capital crunch neither a borrower nor a lender be the dramatic reduction in the growth rate of bank lending associated with the 1990 91 recession particularly in new england has evoked claims by many observers of a credit crunch however because of the difficulty in determining whether the observed slow credit growth is a demand or supply phenomenon convincing evidence of the practical importance of credit crunches for economic activity remains elusive we overcome this obstacle by examining a cross section of banks in new england that have experienced the same economic downturn effectively controlling for changes in demand we find empirical support for a capital crunch whereby poorly capitalized institutions shrink to satisfy capital requirements this alone is not a sufficient condition for a credit crunch however we find s6me additional evidence that the ca ital crunch may have limited credit availability in new england

the international transmission of bank capital requirements evidence from the uk abstract we use data on uk banks minimum capital requirements to study the impact of changes to bank specific capital requirements on cross border bank loan supply from 1999q1 to 2006q4 by examining a sample in which each recipient country has multiple relationships with uk resident banks we are able to control for demand effects we find a negative and statistically significant effect of changes to banks capital requirements on cross border lending a 100 basis point increase in the requirement is associated with a reduction in the growth rate of cross border credit of 5 5 percentage points we also find that banks tend to favor their most important country relationships so that the negative cross border credit supply response in core countries is significantly less than in others banks tend to cut back cross border credit to other banks including foreign affiliates more than to firms and households consistent with shorter maturity wholesale lending which is easier to roll off and may be associated with weaker borrowing relationships

international shock transmission after the lehman brothers collapse evidence from syndicated lending after lehman brothers filed for bankruptcy in september 2008 cross border bank lending contracted sharply to explain the severity and variation in this contraction we analyze detailed data on cross border syndicated lending by 75 banks to 59 countries we find that banks that had to write down sub prime assets refinance large amounts of long term debt and experienced sharp declines in their market to book ratio transmitted these shocks across borders by curtailing their lending abroad while shocked banks differentiated between countries in much the same way as less constrained banks they restricted their lending more to small borrowers

an analysis of the impact of interest rate ceilings the first aim of this study is to estimate the interest rates paid for motor vehicle loans the second aim is to identify those potential borrowers most likely to be rationed out of the market by the imposition of rate ceilings rate ceilings constrain the rates paid by successful loan applicants to be no greater than the applicable ceiling level these constraints are dealt with by treating the interest rate paid as a variable truncated at the ceiling level assuming the dependent variable is truncated normal consistent estimates are obtained by employing the maximum likelihood method of hausman and wise

comment on the spillovers interactions and un intended consequences of monetary and regulatory policies by kristin forbes dennis reinhardt and tomasz wieladek journal of monetary economics

liquidity management of u s global banks internal capital markets in the great recession abstract the recent crisis highlighted the importance of globally active banks in linking markets one channel for this linkage is through how these banks manage liquidity across their entire banking organization we document that funds regularly flow between parent banks and their affiliates in diverse foreign markets we show that parent banks when hit by a funding shock reallocate liquidity in the organization according to a locational pecking order affiliate locations that are important for the parent bank revenue streams are relatively protected from liquidity reallocations in the organization while traditional funding locations are more extensively used to buffer shocks to the parent bank balance sheets

the impact of interest rate ceilings on households credit access evidence from a 2013 chilean legislation abstract this study analyzes the impact of a legislation introduced in chile in 2013 which gradually reduced the maximum legal interest rate for consumer loans from 54 to 36 using a representative sample of households that matches survey data and banking loan records i compare consumers with risk adjusted interest rates slightly above and slightly below the legal interest rate ceiling two groups of similar characteristics but who are differently affected by the law after accounting for both macroeconomic shocks and unobserved household heterogeneity the results show that being above the interest rate cap reduces the probability of credit access by 8 7 on average a counterfactual exercise shows that the new legislation excluded 9 7 of the borrowers from banking consumer loans the law s impact was strongest on the youngest least educated and poorest families finally i show that the new law affected all lenders of consumer loans in chile not just banks

financial intermediation and delegated monitoring this paper develops a theory of financial intermediation based on minimizing the cost of monitoring information which is useful for resolving incentive problems between borrowers and lenders it presents a characterization of the costs of providing incentives for delegated monitoring by a financial intermediary diversification within an intermediary serves to reduce these costs even in a risk neutral economy the paper presents some more general analysis of the effect of diversification on resolving incentive problems in the environment assumed in the model debt contracts with costly bankruptcy are shown to be optimal the analysis has implications for the portfolio structure and capital structure of intermediaries

follow the money quantifying domestic effects of foreign bank shocks in the great recession the financial crises have focused consider able academic and policy attention on the roles of foreign banks in transmitting shocks and creating vulnerability for host or parent countries adverse consequences are presumed and a premise of their destabilizing behavior in particular surrounding the branches of foreign banks has taken hold global banks actively allocate funds across their banking organizations in normal times and in stress periods cetorelli and goldberg forthcoming during the great recession some for eign locations of us banks were core investment markets that continued as destinations for funding while other foreign locations served as core funding markets that would send even larger net flows to their parent banks following parent balance sheet disturbances cetorelli and goldberg 2011b in this paper we provide complementary evidence focusing on the perspective of a host country we analyze the activity of foreign banks

financial protectionism first evidence we examine large public interventions in the financial sector such as bank nationalizations and search for financial protectionism a decrease in the quantity and or an increase in the price of loans that banks from one country make to borrowers resident in another we use a bank level panel data set spanning all u k resident banks between 1997q3 and 2010q1 after nationalization foreign banks reduced their fraction of british loans by about 11 and increased their effective interest rates by about 70 basis points in contrast nationalized british banks did not significantly change either their loan mix or effective interest rates

commodity prices and bank lending we analyze the transmission of changes in commodity prices to bank lending in a large sample of developing countries a bank level analysis shows that a fall in commodity net export prices is associated with a reduction of bank lending particularly for commodity exporters and during episodes of terms of trade decline we complement this analysis with loan level data from a credit register which allows us to identify the effect of a commodity price shock on the supply of credit controlling for unobserved factors that could drive borrowers credit demand results show that banks with relatively lower deposits and poor asset quality transmit the changes in commodity prices to lending more aggressively jel f30 f34 g21 q02

reputation risk taking and macroprudential policy abstract this paper examines the role of macroprudential capital requirements in preventing inefficient credit booms in a model with reputational externalities in our model unprofitable banks have strong incentives to invest in risky assets when macroeconomic fundamentals are good in order to avoid the stigma of being assessed as low ability by the market we show that across the system countercyclical capital requirements that deter such gambling are constrained optimal when fundamentals are neither extremely weak nor extremely strong

effective macroprudential policy cross sector substitution from price and quantity measures macroprudential policy is increasingly being implemented worldwide key questions are its effectiveness in influencing bank credit and substitution effects beyond banking our results confirm the expected effects of macroprudential policies on bank credit both for advanced economies and emerging market economies but results also confirm substitution effects towards non bank credit especially in advanced economies reducing the policies effect on total credit quantity restrictions are particularly potent in constraining bank credit but also cause the strongest substitution effects policy implications indicate a need to extend macroprudential policy beyond banking especially in advanced economies

bank regulation and the credit crunch abstract this study investigates the direct link between regulatory enforcement actions and the shrinkage of bank loans to sectors likely to be bank dependent we partition the shrinkage due to loan supply into the component due to explicit regulatory enforcement actions and that due to a voluntary response by bank management to low capital to asset ratios we find that banks with formal actions shrink at a significantly faster rate than those without even after controlling for differences in capital to asset ratios furthermore much of the reduced lending has been in categories containing primarily loans to bank dependent borrowers

distance and private information in lending we study the effects of physical distance on the acquisition and use of private information in informationally opaque credit markets using a unique data set of all loan applications by small firms to a large bank we show that borrower proximity facilitates the collection of soft information leading to a trade off in the availability and pricing of credit which is more readily accessible to nearby firms albeit at higher interest rates ceteris paribus analyzing loan rates and firms decision to switch lenders provides further evidence for banks strategic use of private information however distance erodes our lender s ability to collect proprietary intelligence and to carve out local captive markets suggesting that the requisite soft information is primarily local the author 2010 published by oxford university press on behalf of the society for financial studies all rights reserved for permissions please e mail journals permissions oxfordjournals org oxford university press

truthful revelation in the diamond and dybvig banking environment abstract the welfare analysis in the diamond and dybvig banking literature has been conducted by appealing to the revelation principle the best banking arrangement that induces truthtelling by depositors is characterized and it is asserted presumably by appeal to the revelation principle that no other arrangement could give higher welfare this appeal to the revelation principle is however not straightforward because the diamond and dybvig environment includes a sequential service constraint which is not present in standard formulations of the revelation principle this paper justifies the use of the revelation principle in sequential service environments

the economic impact of the federal credit union usury ceiling this study measures the impact of the federal credit union usury ceiling on consumer credit availability and loan rates when binding the ceiling keeps loan rates low but it reduces credit union lending there is also evidence that a binding loan rate ceiling affects the competitiveness of credit unions in the market for deposits although the federal credit union act specifically mandates federally chartered credit unions to be a source of low cost consumer credit and to promote thriftiness it is not at all clear that the intent of the act is served by a binding usury ceiling

optimal monetary and macroprudential policy in a currency union abstract the financial crisis proved strikingly that financial frictions play a crucial role for system risk and policymakers have overlooked financial stability the obvious candidate for addressing financial stability is macroprudential policy in this paper we study the optimal ramsey monetary and macroprudential policy mix in a currency union in the case of different kinds of aggregate and idiosyncratic shocks the monetary and macroprudential instruments are modeled as independent tools with a union wide macroprudential tool full stabilization on the aggregate level is possible but welfare losses due to fluctuations in relative variables prevail with country specific macroprudential tools full stabilization of shocks is always possible but as a rule not optimal evaluating the performance of different policy regimes shows that the additional welfare gains from having country specific macroprudential tools are small and vanish as the ability of the central bank to commit decreases

do contractionary monetary policy shocks expand shadow banking summary using var models for the usa we find that a contractionary monetary policy shock has a persistent negative impact on the level of commercial bank assets but increases the assets of shadow banks and securitization activity to explain this waterbed effect we propose a standard new keynesian model featuring both commercial and shadow banks and we show that the model comes close to explaining the empirical results our findings cast doubt on the idea that monetary policy can usefully get in all the cracks of the financial sector in a uniform way

procyclical capital regulation and lending we use a quasi experimental research design to examine the effect of model based capital regulation on the procyclicality of bank lending and firms access to funds in response to an exogenous shock to credit risk in the german economy capital charges for loans under model based regulation increased by 0 5 percentage points as a consequence banks reduced the amount of these loans by 2 1 to 3 9 percentage points more than for loans under the traditional approach with fixed capital charges we find an even stronger effect when we examine aggregate firm borrowing suggesting that microprudential capital regulation can have sizeable real effects

cross country experiences and policy implications from the global financial crisis the financial crisis of 2007 2008 is rooted in a number of factors some common to previous financial crises others new analysis of post crisis macroeconomic and financial sector performance for 58 advanced countries and emerging markets shows a differential impact of old and new factors factors common to other crises like asset price bubbles and current account deficits help to explain cross country differences in the severity of real economic impacts new factors such as increased financial integration and dependence on wholesale funding help to account for the amplification and global spread of the financial crisis our findings point to vulnerabilities to be monitored and areas of needed national and international reforms to reduce risk of future crises and cross border spillovers they also reinforce a sad state of knowledge much of how crises start and spread remains unknown stijn claessens giovanni dell ariccia deniz igan and luc laeven

capital requirements and bank behavior in the uk are there lessons for international capital standards abstract the financial crisis prompted widespread interest in developing a better understanding of how capital regulation drives bank behavior this paper uses a unique comprehensive database of regulatory capital requirements on all uk banks to examine their effects on capital lending and balance sheet management behavior we find that capital requirements that include firm specific time varying add ons set by supervisors affect banks desired capital ratios and that resulting adjustments to capital and lending depend on the gap between actual and target ratios we use these results to measure the effects of a capital regime that includes features similar to those embedded in the uk framework our results suggest that countercyclical capital requirements may be less effective in slowing credit activity when banks can readily satisfy them with lower quality lower costing capital elements versus higher quality common equity given the size of the uk banking sector and the global nature of many of the largest institutions in the uk banking sector the results have implications for the ongoing debate surrounding the design and calibration of international capital standards

borrowing relationships intermediation and the cost of issuing public securities abstract this paper investigates how an established borrowing relationship affects the costs associated with initial public offerings of equity our model illustrates how the existence of a borrowing relationship reduces the ex ante uncertainty about the value of the issuing firm s equity in the secondary market if underpricing is related to uncertainty a borrowing relationship can reduce underpricing empirically we find that other things equal ipos of firms with previously established borrowing relationships are underpriced substantially less than other ipos

loan sales and relationship banking firms raise money from banks and the bond market banks sell loans in a secondary market to recycle their funds or to trade on private information liquidity in the loan market depends on the relative likelihood of each motive for trade and affects firms optimal financial structure the endogenous degree of liquidity is not always socially optimal there is excessive trade in highly rated names and insufficient liquidity in riskier bonds we provide testable implications for prices and quantities in primary and secondary loan markets and bond markets further we posit that risk based capital requirements may be socially desirable the term collateralized loan obligations clos was coined in 1989 when corporate loans were first used as collateral in collateralized debt obligations cdos 1 since then the growth in loan sales has been enormous according to lucas et al 2006 1 1 trillion of cdos were outstanding as of 2005 and 50 of their collateral was comprised of loans in addition to pooled securities banks also trade first loss positions on single names through direct sales of individual loans in the united states loan sales have grown from 8 billion in 1991 to 154 8 billion by 2004 2 if a bank securitizes or sells a loan that it originated it is buying insurance on credit events over which it has either more control or more information than the buyer in the face of this informational friction why did the secondary market for corporate loans develop in the 1990s what effect has this had on relationship banking in this paper we characterize when a liquid secondary market for loans arises when a liquid secondary loan market is socially desirable and we provide testable predictions on the effect of the emergence of this market on prices and quantities in bond and primary loan markets our predictions are based on both changes in the parameters that lead to higher loan liquidity and changes in the contracts that are written between banks and firms given this higher liquidity

the synchronization of credit cycles abstract this paper proposes a simple econometric procedure to test for the synchronization of credit cycles using a century of data for 14 advanced economies we find that credit cycle synchronization dropped in the early 1920s from initially relatively high levels between the 1920s and the 1970s synchronization was overall low and concentrated within five predominantly regional clusters however synchronization has significantly increased in the post bretton woods era and has become less associated with geographic proximity australia denmark france italy japan norway spain switzerland the uk and the us form a single major credit cycle cluster since the 1970s a smaller cluster is formed by canada the netherlands and sweden while the german credit cycle follows a distinct path using logistic regressions we find that the synchronization of credit and business cycles go hand in hand our findings are especially relevant for the international coordination of macroprudential policy as well as to spur and inform further analysis on credit cycle dynamics

the spillovers interactions and un intended consequences of monetary and regulatory policies abstract have bank regulatory policies and unconventional monetary policies and any possible interactions been a factor behind the recent deglobalisation in cross border bank lending to test this hypothesis we use bank level data from the uk a country at the heart of the global financial system our results suggest that increases in microprudential capital requirements tend to reduce international bank lending and some forms of unconventional monetary policy can amplify this effect specifically the uk s funding for lending scheme fls significantly amplified the effects of increased capital requirements on cross border lending quantitative easing did not appear to have a similar effect and countries with stronger prudential capital regulations were partially insulated against the effects of these changes in uk policy we find that this interaction between microprudential regulations and the fls can explain roughly 30 of the contraction in aggregate uk cross border bank lending between mid 2012 and end 2013 corresponding to around 10 of the global contraction in cross border lending this suggests that unconventional monetary policy designed to support domestic lending can have the unintended consequence of reducing foreign lending

policy mandates and institutional architecture abstract the model developed in this paper examines the interaction between monetary and macroprudential policies in promoting macroeconomic stability highlighting the role of shocks and policy instruments the paper shows that assigning the mandates of monetary and financial stability to independent authorities enhances macroeconomic stability only when some level of coordination exists between policymakers and it is the dominant institutional arrangement when monetary stability is socially important instead when society values financial stability internalising the policy spillovers by assigning the two mandates to a single policymaker could become the dominant configuration depending on the model s parameter values

cross country causes and consequences of the crisis an update abstract we update rose and spiegel forthcoming rose and spiegel 2010 and search for simple quantitative models of macroeconomic and financial indicators of the great recession of 2008 09 we use a cross country approach and examine a number of potential causes that have been found to be successful indicators of crisis intensity by other scholars we check a number of different indicators of crisis intensity and a variety of different country samples while countries with higher income and looser credit market regulation seemed to suffer worse crises we find few clear reliable indicators in the pre crisis data of the incidence of the great recession countries with current account surpluses seemed better insulated from slowdowns

how does credit supply respond to monetary policy and bank minimum capital requirements abstract we use data on uk banks minimum capital requirements to study the interaction of monetary policy and capital requirement regulation uk banks were subject to both time varying capital requirements and changes in interest rate policy tightening of either capital requirements or monetary policy reduces the supply of lending lending by large banks reacts substantially to capital requirement changes but not to monetary policy changes lending by small banks reacts to both there is little evidence of interaction between these two policy instruments the differences in the responses of small and large banks identify important distributional consequences within the financial system of these two policy instruments finally our findings do not corroborate theoretical models that raise concerns about complex interactions between monetary policy and macro prudential variation in capital requirements

banks incentives and inconsistent risk models this paper investigates banks incentive to bias the risk estimates they report to regulators within loan syndicates we find that banks with less capital report lower risk estimates consistent with an effort to mitigate capital requirements the sensitivity to capital is robust to bank fixed effects and greater for large risky and opaque credits also low capital banks risk estimates have less explanatory power than those of high capital banks with regard to loan prices indicating that their estimates incorporate less information our results suggest banks underreport risk in response to capital constraints and highlight the perils of regulation premised on self reporting received september 21 2016 editorial decision september 18 2017 by editor philip strahan authors have furnished an internet appendix which is available on the oxford university press web site next to the link to the final published paper online

international financial remoteness and macroeconomic volatility abstract this paper shows that proximity to major international financial centers seems to reduce business cycle volatility in particular we show that countries that are farther from major locations of international financial activity systematically experience more volatile growth rates in both output and consumption even after accounting for political institutions trade and other controls our results are relatively robust in the sense that more financially remote countries are more volatile though the results are not always statistically significant the comparative strength of this finding is in contrast to the more ambiguous evidence found in the literature

macroprudential policies and housing prices a new database and empirical evidence for central eastern and southeastern europe several countries in central eastern and southeastern europe used a rich set of prudential instruments during the recent credit and housing boom and bust cycles we construct a comprehensive database of these policy measures covering 16 countries at a quarterly frequency we use this database to investigate whether the policy measures had an impact on housing price inflation the measures that appeared to be effective were capital measures minimum capital adequacy ratio maximum ratio of lending to households to share capital and nonstandard liquidity measures marginal reserve requirements mrrs on foreign funding mrrs linked to credit growth

capital regulation and the macroeconomy empirical evidence and macroprudential policy abstract we present new evidence on the macroeconomic effects of changes in microprudential bank capital requirements using confidential regulatory data from the basel i and ii regimes in the united kingdom our central result is that an increase in capital requirements lowered lending to firms and households reduced aggregate expenditure and raised credit spreads a financial accelerator effect is found to have amplified the macroeconomic responses to shifts in bank credit supply results from a counterfactual experiment that links capital requirements to house prices and mortgage spreads indicate that tighter macroprudential policy would have had a moderating effect on house price and mortgage lending growth in the early 2000s with easier monetary policy acting to offset its contractionary effects on output

the effect of government regulations on personal loan markets a tobit estimation of a microeconomic model the purpose of this paper is to analyze both theoretically and empirically the effect of selected government regulations on a high risk personal loan market unlike previous studies which have generally relied on a loosely specified theory and then tested this theory with statewide aggregate data our analysis is based on a more tightly specified model for individual loans which is then tested using statewide disaggregated data the empirical results indicate that the regulatory effects are not only significant but consistent with our theoretical microeconomic model the purpose of this paper is to analyze the effect of selected government regulations on a high risk personal loan market this is done by developing a simple model of the supply of and demand for a single high risk personal loan and then using the model as the basis for our econometric analysis due to econometric problems related to the presence of legal rate ceilings on such loans we derive and estimate reduced form equations rather than structural equations however as will be shown the market effects of regulations may still be tested against a priori restrictions 1 the emphasis on individual loan transactions is a distinguishing feature of our study this permits a more accurate assessment of the consequences of regulation for personal loan markets than is possible using aggregate state data see for example greer 18 19 and benston 9 10 11 because regulatory constraints vary with the specific terms of the loan as well as individual borrower characteristics as examples legal rate ceilings typically vary with the amount loaned and the amount that may be garnished generally depends on each borrower s earnings in this type of setting lenders essentially act as multi product firms selling different loan amounts of varying terms to borrowers