Russia: Overcoming the Effects of Economic Crisis Takes Time
Martina Kämpfe
Wirtschaft im Wandel,
No. 6,
2010
Abstract
The last year's decline of Gross Domestic Product in Russia was harder than in most big economies of the world. The financial crisis has revealed specific circumstances of growth in Russia: The situation deteriorated not only by the downfall of crude oil prices, but especially by the Russian banking sector not being able to satisfy financing demand of the private sector enterprises. So foreign liabilities of enterprises had increased and the dependence of the enterprises on the international financial markets had strengthened. In that way impacts of the global financial crisis affected Russia harder. Although external conditions for the Russian economy improved in the last months due to the rise of world oil prices and global demand for commodities, domestic demand still suffers from small revenues and bad financing conditions for enterprises. Because of its structural weakness it will take Russia longer than other transformation countries to overcome the crisis. Economic growth in the near future will expand much smaller than on last years’ average.
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The Impact of Bank and Non-bank Financial Institutions on Local Economic Growth in China
Xiaoqiang Cheng, Hans Degryse
Journal of Financial Services Research,
No. 2,
2010
Abstract
This paper provides evidence on the relationship between finance and growth in a fast growing country, such as China. Employing data of 27 Chinese provinces over the period 1995–2003, we study whether the financial development of two different types of financial institutions — banks and non-banks — have a (significantly different) impact on local economic growth. Our findings indicate that banking development shows a statistically significant and economically more pronounced impact on local economic growth.
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Cross-border Exposures and Financial Contagion
Hans Degryse, Muhammad Ather Elahi, Maria Fabiana Penas
International Review of Finance,
No. 2,
2010
Abstract
Integrated financial markets provide opportunities for expansion and improved risk sharing, but also pose threats of contagion risk through cross-border exposures. This paper examines cross-border contagion risk over the period 1999–2006. To that purpose we use aggregate cross-border exposures of 17 countries as reported in the Bank for International Settlements Consolidated Banking Statistics. We find that a shock that affects the liabilities of one country may undermine the stability of the entire financial system. Particularly, a shock wiping out 25% (35%) of US (UK) cross-border liabilities against non-US (non-UK) banks could lead to bank contagion eroding at least 94% (45%) of the recipient countries' banking assets. We also find that since 2006 a shock to Eastern Europe, Turkey and Russia affects most countries. Our simulations also reveal that the ‘speed of propagation of contagion’ has increased in recent years resulting in a higher number of directly exposed banking systems. Finally, we find that contagion is more widespread in geographical proximities.
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Real Estate Prices and Bank Stability
Michael Koetter, Tigran Poghosyan
Journal of Banking and Finance,
No. 34,
2010
Abstract
Real estate prices can deviate from their fundamental value due to rigid supply, heterogeneity in quality, and various market imperfections, which have two contrasting effects on bank stability. Higher prices increase the value of collateral and net wealth of borrowers and thus reduce the likelihood of credit defaults. In contrast, persistent deviations from fundamentals may foster the adverse selection of increasingly risky creditors by banks seeking to expand their loan portfolios, which increases bank distress probabilities. We test these hypotheses using unique data on real estate markets and banks in Germany. House price deviations contribute to bank instability, but nominal house price developments do not. This finding corroborates the importance of deviations from the fundamental value of real estate, rather than just price levels or changes alone, when assessing bank stability.
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The Extreme Risk Problem for Monetary Policies of the Euro-Candidates
Hubert Gabrisch, Lucjan T. Orlowski
Abstract
We argue that monetary policies in euro-candidate countries should also aim at mitigating excessive instability of the key target and instrument variables of monetary policy during turbulent market periods. Our empirical tests show a significant degree of leptokurtosis, thus prevalence of tail-risks, in the conditional volatility series of such variables in the euro-candidate countries. Their central banks will be well-advised to use both standard and unorthodox (discretionary) tools of monetary policy to mitigate such extreme risks while steering their economies out of the crisis and through the euroconvergence process. Such policies provide flexibility that is not embedded in the Taylor-type instrument rules, or in the Maastricht convergence criteria.
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Taxing Banks: Do it properly or not at all
Ulrich Blum, Diemo Dietrich
Wirtschaft im Wandel,
No. 5,
2010
Abstract
Taxing banks in favor of a mutual fund to safeguard future financial stability has been subject to an intensive public debate. The currently proposed solution, however, will not provide any protection against systemic risks. We argue that using tax revenues to reduce public debt would bring down the risk premium that government has to pay and thereby improves the capability of economic policy to stabilize the economy in future times of distress. Anything else is associated with the risk that bank capital is devastated which would hamper the economic recovery.
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Credit Union Membership and Use of Internet Banking Technology
H. Evren Damar, Lynn Hunnicutt
B.E. Journal of Economic Analysis and Policy,
No. 1,
2010
Abstract
What makes households use internet banking? Bank adoption of internet banking technology has been widely considered, but relatively few papers address consumer usage of internet banking. This study looks at the determinants of internet banking usage among credit union members in the Western United States. We use call report data from the National Credit Union Administration to calculate the rate of internet banking usage among a credit union's members, which allows us to examine whether variations in institutional characteristics, local economic conditions and membership criteria have an impact on the internet usage rates among members of different credit unions. We find that members in credit unions that were early internet technology adopters have higher usage rates, and that the contribution to usage rates varies among types of online services offered.
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International Bank Portfolios: Short- and Long-Run Responses to Macroeconomic Conditions
S. Blank, Claudia M. Buch
Review of International Economics,
No. 2,
2010
Abstract
International bank portfolios constitute a large component of international country portfolios. Yet, banks’ response to international macroeconomic conditions remains largely unexplored.We use a novel dataset on banks’ international portfolios to answer three questions. First, what are the long-run determinants of banks’ international portfolios? Second, how do banks’ international portfolios adjust to short-run macroeconomic developments? Third, does the speed of adjustment change with the degree of financial integration?We find that, in the long-run, market size has a positive impact on foreign assets and liabilities. An increase in the interest differential between the home and the foreign economy lowers foreign assets and increases foreign liabilities. Foreign trade has a positive impact on international bank portfolios, which is independent from the effect of other macroeconomic variables. Short-run dynamics show heterogeneity across countries, but these dynamics can partly be explained with gravity-type variables.
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Government Interventions in Banking Crises: Assessing Alternative Schemes in a Banking Model of Debt Overhang
Diemo Dietrich, Achim Hauck
Abstract
We evaluate policy measures to stop the fall in loan supply following a banking crisis. We apply a dynamic framework in which a debt overhang induces banks to curtail lending or to choose a fragile capital structure. Government assistance conditional on new banking activities, like on new lending or on debt and equity issues, allows banks to influence the scale of the assistance and to externalize risks, implying overinvestment or excessive risk taking or both. Assistance granted without reference to new activities, like establishing a bad bank, does not generate adverse incentives but may have higher fiscal costs.
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