Claudio Barbieri
- 10 May 2023
- WORKING PAPER SERIES - No. 2814Details
- Abstract
- The paper studies the central bank collateral framework and its impact on banks’ liquidity under an adverse stress test scenario. We construct a stress test model that accounts for a granular and multi-faceted representation of the liquidity of marketable and non-marketable assets. In particular, the model analyses banks’ strategic decisions to mobilise assets through four funding channels: unsecured loans, asset sales, private repurchase agreements, or Central Bank lending. We test three scenarios: the EBA regulatory stress test exercise, a shock to Russia and the Eastern European countries, and a shock to the Southern European countries. Results show that illiquidity can trigger insolvency and that liquidity adjustment can last significantly after the initial shock. We find evidence of a threshold in the benefits of expanding the collateral framework and highlight the heterogeneous effects across different jurisdictions and financial institutions. We find that bank equity losses are reduced in aggregate up to 17% at the tail of the loss distribution and on average by around 5% when financial institutions can rely on the collateral framework channel.
- JEL Code
- C63 : Mathematical and Quantitative Methods→Mathematical Methods, Programming Models, Mathematical and Simulation Modeling→Computational Techniques, Simulation Modeling
E52 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit→Monetary Policy
G01 : Financial Economics→General→Financial Crises
G28 : Financial Economics→Financial Institutions and Services→Government Policy and Regulation
- 9 August 2022
- WORKING PAPER SERIES - No. 2702Details
- Abstract
- Macroprudential policies should strengthen the banking sector throughout the financial cycle. However, while bank credit growth is used to capture cyclical exuberance and calibrate buffer requirements, it depends on potentially heterogeneous dynamics on the borrower and lender side. By decomposing credit growth into a common component and components capturing heterogeneity in supply and demand à la Amiti and Weinstein, 2018 applied on the euro area credit register ("AnaCredit"), we can inform the policy debates in two ways. Ex ante, we introduce a framework mapping the decomposition to different types of macroprudential instruments, specifically broad vs. targeted measures. Ex post, we also show that the resulting decomposition can be used to assess the effectiveness of adopted measures on credit supply or demand. We find evidence that buffer releases and credit guarantees increased bank credit supply during the COVID-19 pandemic and interacted positively with banks' profitability.
- JEL Code
- E58 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit→Central Banks and Their Policies
E52 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit→Monetary Policy
E44 : Macroeconomics and Monetary Economics→Money and Interest Rates→Financial Markets and the Macroeconomy
G21 : Financial Economics→Financial Institutions and Services→Banks, Depository Institutions, Micro Finance Institutions, Mortgages