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This paper investigates empirically the drivers of financial imbalances ahead of the global financial crisis. Three factors may have contributed to the build-up of financial imbalances: (i) rising global imbalances (capital flows), (ii) monetary policy that might have been too loose, (iii) inadequate supervision and regulation. Panel data regressions are performed for OECD countries from 1999 to 2007, so as to shed light on the relative importance of these factors, as well as the extent to which these factors might have interacted in fuelling the build-up. We find that the build-up of financial imbalances was driven by capital inflows and an associated compression of the spread between long and short rates. The effect of capital inflows on the build-up is amplified where the supervisory and regulatory environment was relatively weak. We find that, by contrast, differences in monetary policy cannot account for differences across countries in the build-up of financial imbalances ahead of the crisis.

Banks and Banking --- Exports and Imports --- Money and Monetary Policy --- Financial Institutions and Services: Government Policy and Regulation --- International Investment --- Long-term Capital Movements --- Current Account Adjustment --- Short-term Capital Movements --- Monetary Policy, Central Banking, and the Supply of Money and Credit: General --- Interest Rates: Determination, Term Structure, and Effects --- Banks --- Depository Institutions --- Micro Finance Institutions --- Mortgages --- International economics --- Monetary economics --- Banking --- Current account --- Bank credit --- Capital flows --- Central bank policy rate --- Capital inflows --- Balance of payments --- Commercial banks --- Financial institutions --- Money --- Capital movements --- Credit --- Interest rates --- Banks and banking --- United States

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This paper assesses the impact of introducing an efficient payment system on the amount of credit provided by the banking system. Two channels are investigated. First, innovations in wholesale payments technology enhance the security and speed of deposits as a payment medium for customers and therefore affect the split between holdings of cash and the holdings of deposits that can be intermediated by the banking system. Second, innovations in wholesale payments technology help establish well-functioning interbank markets for end-of-day funds, which reduces the need for banks to hold excess reserves. The authors examine these links empirically using payment system reforms in Eastern European countries as a laboratory. The analysis finds evidence that reforms led to a shift away from cash in favor of demand deposits and that this in turn enabled a prolonged credit expansion in the sample countries. By contrast, while payment system innovations also led to a reduction in excess reserves in some countries, this effect was not causal for the credit boom observed in these countries.

Access to Finance --- Bank failures --- Bank of England --- Banking system --- Banking systems --- Bankruptcy and Resolution of Financial Distress --- Banks --- Banks & Banking Reform --- Borrowing costs --- Central banks --- Currencies and Exchange Rates --- Debt Markets --- Demand deposits --- Deposits --- Federal deposit insurance --- Federal reserve system --- Finance and Financial Sector Development --- Interbank markets --- Interest rates --- Liquid assets --- Loan commitments --- Open market operations --- Payment systems --- Settlement systems --- Transition economies --- Transport

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We study the liquidity demand of large settlement banks in the UK and its effect on the Sterling Money Markets before and during the sub-prime crisis of 2007-08. Liquidity holdings of large settlement banks experienced on average a 30% increase in the period immediately following 9th August, 2007, the day when money markets froze, igniting the crisis. Following this structural break, settlement bank liquidity had a precautionary nature in that it rose on calendar days with a large amount of payment activity and more so for weaker banks. We establish that the liquidity demand by settlement banks caused overnight inter-bank rates to rise, an effect virtually absent in the pre-crisis period. This liquidity effect on inter-bank rates occurred in both unsecured borrowing as well as borrowing secured by UK government bonds. Further, the effect was experienced by all settlement banks, regardless of their credit risk, suggestive of an interest-rate contagion from weaker to stronger banks operating through the inter-bank markets.

Zonder onderwerpscode: economie

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Using a multi-country panel of banks, we study whether better capitalized banks experienced higher stock returns during the financial crisis. We differentiate among various types of capital ratios: the Basel risk-adjusted ratio; the leverage ratio; the Tier I and Tier II ratios; and the tangible equity ratio. We find several results: (i) before the crisis, differences in capital did not have much impact on stock returns; (ii) during the crisis, a stronger capital position was associated with better stock market performance, most markedly for larger banks; (iii) the relationship between stock returns and capital is stronger when capital is measured by the leverage ratio rather than the risk-adjusted capital ratio; (iv) higher quality forms of capital, such as Tier 1 capital and tangible common equity, were more relevant.

Bank capital. --- Banques Capital. --- Financial crises. --- Banks and Banking --- Financial Risk Management --- Investments: Stocks --- Finance: General --- Banks --- Depository Institutions --- Micro Finance Institutions --- Mortgages --- Financial Institutions and Services: Government Policy and Regulation --- Pension Funds --- Non-bank Financial Institutions --- Financial Instruments --- Institutional Investors --- Financial Crises --- General Financial Markets: General (includes Measurement and Data) --- Banking --- Investment & securities --- Financial services law & regulation --- Economic & financial crises & disasters --- Finance --- Stocks --- Financial crises --- Capital adequacy requirements --- Loan loss provisions --- Financial institutions --- Financial regulation and supervision --- Stock markets --- Financial markets --- Banks and banking --- Asset requirements --- State supervision --- Stock exchanges --- United States

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This paper discusses Islamic banking products and interprets them in the context of financial intermediation theory. Anecdotal evidence shows that many of the conventional products can be redrafted as Sharia-compliant products, so that the differences are smaller than expected. Comparing conventional and Islamic banks and controlling for other bank and country characteristics, the authors find few significant differences in business orientation, efficiency, asset quality, or stability. While Islamic banks seem more cost-effective than conventional banks in a broad cross-country sample, this finding reverses in a sample of countries with both Islamic and conventional banks. However, conventional banks that operate in countries with a higher market share of Islamic banks are more cost-effective but less stable. There is also consistent evidence of higher capitalization of Islamic banks and this capital cushion plus higher liquidity reserves explains the relatively better performance of Islamic banks during the recent crisis.

Banking law (Islamic law) --- Banks and banking --- Religious aspects --- Islam.