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Appleton, Nathan, -- 1779-1861 -- Examination of the banking system of Massachusetts --- Banks and banking -- Massachusetts

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The objective of this master's thesis is to study and assess the impact of the Covid-19 crisis on the stability of the Belgian banking system.
To do so, the method implemented by Reinders et al. (2020) measuring the estimated additional losses in the portfolio of European banks is applied at the Belgian level. This model allows to evaluate the amount of losses of banks in their corporate loan portfolio by determining the changes in the probability of these companies to be in default. To estimate these changes in default probability a Black and Scholes (1973) and Merton (1974) model is used to measure the impact of an asset valuation shock in the value of the equity and the debt of a firm.
The model developed allow us to calculate changes in the probability of default for the 111 publicly traded firms in the sample based on their stock market data responses between March 17, 2020, when the crisis peaked, and June 30, 2021, when data was last available. Once the change in probability of default obtained we were able to compute the potential losses in Belgian banks corporate loans portfolio by multiplying this change of the probability of default to the exposure at default of the banking sector as well as the loss given default.
Our findings point to a few key conclusions. The first is that at the peak of the Covid-19 crisis, losses in banks' corporate loan portfolios were substantial, ranging from 7.45 percent to 37.66 percent of total corporate loan exposures according to various scenarios resulting from the pandemic's impact on both equity volatility and loss given default. The second is that the stability of the Belgian banking sector appears to have been established, as well as the efficacy of monetary and fiscal assistance measures. Indeed, compared to the peak of the crisis, additional predicted losses as of June 30, 2020 have been considerably decreased to represent only a small fraction of total corporate loan exposures.
As a result, this analysis gives an estimate of the banks' potential losses and allows them to be evaluated for solvency. The approach described here may be useful for bank supervisory organizations to assess the impact of the Covid-19 shock for the business sector reflected on banks' balance sheets and take appropriate measures to ensure financial stability while keeping credit available to real-economy actors.

Financial Stability --- Banking system --- Covid-19 --- Merton Model --- Black & Scholes Model --- Sciences économiques & de gestion > Finance

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Reverse stress tests can be a useful tool to evaluate bank resilience to a credit shock, especially in environments where financial data are limited or opaque. This paper develops a simple and transparent country-level banking sector resilience indicator that focuses on tail risks, the Consolidated Distance to Breakpoint. Based on individual bank reverse stress test results, this novel metric quantifies the increase in nonperforming loans needed to deplete capital buffers for a subset of the most fragile banks that collectively represent at least 20 percent of total banking system assets, a level commonly associated with a systemic banking crisis. The paper calculates the Consolidated Distance to Breakpoint using public data for more than 1,500 banks in 59 emerging market and developing economies during the COVID-19 pandemic. The paper explores the value added of this metric in relation to widely used country-level macro-financial and soundness indicators. The results show that the association of the Consolidated Distance to Breakpoint with these macro-financial and financial soundness indicators is limited. This suggests that this new indicator encapsulates complementary information, possibly because aggregate measures may obscure challenges in individual banks. As such, the Consolidated Distance to Breakpoint metric could serve as a useful input to establish a basic understanding of a banking sector's resilience.

Bank Capital --- Banking System --- Early Warning Systems --- Finance and Financial Sector Development --- Financial Crisis Management and Restructuring --- Financial Regulation and Supervision --- Financial Stability --- Systemic Risk

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Gallatin, Albert, -- 1761-1849 -- Considerations on the currency and banking system of the United States --- Currency question -- United States --- Banks and banking -- United States

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China is often mentioned as a counterexample to the findings in the finance and growth literature since, despite the weaknesses in its banking system, it is one of the fastest growing economies in the world. The fast growth of Chinese private sector firms is taken as evidence that it is alternative financing and governance mechanisms that support China's growth. This paper takes a closer look at firm financing patterns and growth using a database of 2,400 Chinese firms. The authors find that a relatively small percentage of firms in the sample utilize formal bank finance with a much greater reliance on informal sources. However, the results suggest that despite its weaknesses, financing from the formal financial system is associated with faster firm growth, whereas fund raising from alternative channels is not. Using a selection model, the authors find no evidence that these results arise because of the selection of firms that have access to the formal financial system. Although firms report bank corruption, there is no evidence that it significantly affects the allocation of credit or the performance of firms that receive the credit. The findings suggest that the role of reputation and relationship based financing and governance mechanisms in financing the fastest growing firms in China is likely to be overestimated.

Access to Finance --- Alternative Financing --- Banking System --- Bankruptcy and Resolution of Financial Distress --- Banks and Banking Reform --- Corruption --- Debt Markets --- Finance and Financial Sector Development --- Financial Development --- Financial System --- Financial Systems --- Formal Bank --- Formal Financial Institutions --- Informal Finance --- International Bank