03.05.2016 • 20/2016
Are Lacking Structural Reforms in the Financial Sector the Underlying Reason for the German Criticism of the ECB?
The major reason for the intense criticism of the European Central Bank’s (ECB’s) low-interest-rate policy may be the lack of structural reforms in the German banking system. The resulting persistent fragmentation increases the banking sector’s vulnerability to the low-interest-rate environment. Hence, parts of the banking sector, due to their strong ties to politicians, appear to have successfully influenced public opinion against the ECB.
Reint E. Gropp
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Foreign Direct Investment: The Role of Institutional and Cultural Determinants
Stefan Eichler, N. Lucke
Applied Economics,
No. 11,
2016
Abstract
Using panel data for 29 source and 65 host countries in the period 1995–2009, we examine the determinants of bilateral FDI stocks, focusing on institutional and cultural factors. The results reveal that institutional and cultural distance is important and that FDI has a predominantly regional aspect. FDI to developing countries is positively affected by better institutions in the host country, while foreign investors prefer to invest in developed countries that are more corrupt and politically unstable compared to home. The results indicate that foreign investors prefer to invest in countries with less diverse societies than their own.
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16.12.2015 • 45/2015
German Economy: Strong domestic demand compensates for weak exports
The upturn of the German economy is expected to gain further momentum as a consequence of strong domestic demand. Real gross domestic product is expected to increase by 1.6% in 2016. Consumer prices are expected to rise by 0.9%. Unemployment is expected to rise slightly because it will take time to integrate refugees into the labour market.
Oliver Holtemöller
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A Review of Empirical Research on the Design and Impact of Regulation in the Banking Sector
Sanja Jakovljević, Hans Degryse, Steven Ongena
Annual Review of Financial Economics,
2015
Abstract
We review existing empirical research on the design and impact of regulation in the banking sector. The impact of each individual piece of regulation may inexorably depend on the set of regulations already in place, the characteristics of the banks involved (from their size or ownership structure to operational idiosyncrasies in terms of capitalization levels or risk-taking behavior), and the institutional development of the country where the regulation is introduced. This complexity is challenging for the econometrician, who relies either on single-country data to identify challenges for regulation or on cross-country data to assess the overall effects of regulation. It is also troubling for the policy maker, who has to optimally design regulation to avoid any unintended consequences, especially those that vary over the credit cycle such as the currently developing macroprudential frameworks.
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International Banking and Liquidity Risk Transmission: Evidence from Canada
James Chapman, H. Evren Damar
IMF Economic Review,
No. 3,
2015
Abstract
This paper investigates how liquidity conditions in Canada may affect domestic and/or foreign lending of globally active Canadian banks, and whether this transmission is influenced by individual bank characteristics. It finds that Canadian banks expanded their foreign lending during the recent financial crisis, often through acquisitions of foreign banks. It also finds evidence that internal capital markets play a role in the lending activities of globally active Canadian banks during times of heightened liquidity risk.
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Uncertainty, Bank Lending, and Bank-level Heterogeneity
Claudia M. Buch, Manuel Buchholz, Lena Tonzer
IMF Economic Review,
No. 4,
2015
Abstract
We analyze how uncertainty affects bank lending. We measure uncertainty as the cross-sectional dispersion of shocks to bank-level variables. Comparing this measure of uncertainty in banking to more traditional measures of uncertainty, we find similar but no identical patterns. Higher uncertainty in banking has negative effects on bank lending. This effect is heterogeneous across banks: lending by banks that are better capitalized and have higher liquidity buffers tends to be affected less. Also, the degree of internationalization matters, as loan supply by banks in financially open countries is affected less by uncertainty. The impact of the ownership status of the individual bank is less important, in contrast.
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24.09.2015 • 38/2015
German Households Benefit from Low Interest Environment
Calculations of the Halle Institute for Economic Research (IWH) – Member of the Leibniz Association show that the average household in Germany has benefited from the low policy rate environment. The average return on their portfolio was higher than in the pre-crisis period while at the same time, they benefited from lower interest on new loans. Households in Germany had a total Euro benefit of more than 364 billion Euro over a five-year period relative to 2003 to 2007. Increases in stock prices and real estate prices over-compensate lower interest rates on savings accounts, despite their relatively low share in households’ portfolios. There are benefits across the income distribution. Households that do not own real estate lost though, but their losses are very small at on average about 100 Euro per year.
Reint E. Gropp
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Stress Testing and Bank Efficiency: Evidence from Europe
Iftekhar Hasan, Fotios Pasiouras
International Journal of Corporate Finance and Accounting,
No. 2,
2015
Abstract
This study examines whether and how the stress testing of European banks in 2010, 2011, and 2014 is related to their technical, allocative, and cost efficiency. Using a sample of large commercial banks operating in 20 European countries, and Data Envelopment Analysis (DEA), the authors perform comparisons between banks that were included in one of the three European stress tests and untested banks operating in the same countries. They estimate various specifications as for the inputs and outputs, cross-section and pooled estimations, and they also examine alternative samples as for the ownership of banks. In general, the authors conclude that banks included in the stress-test exercises are more efficient that their counterparties. The differences tend to be statistically significant in the case of allocative efficiency and cost efficiency, but not in the case of technical efficiency. With regards to the latter form of efficiency, the results depend upon the specification and the stress test in question.
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Consequences of China’s Opening to Foreign Banks
Ran Li, Xiang Li, Wen Lei, Yiping Huang
L. Song, R. Garnaut, C. Fang, L. Johnston (eds.), China's Domestic Transformation in a Global Context. Acton: ANU Press,
forthcoming
Abstract
China’s government has recently implemented additional reforms to relax the regulatory environment for foreign banks. Specifically, State Council Order No. 657, signed by Premier Li Keqiang, announced a decision to revise the Regulations of the People’s Republic of China on the Administration of Foreign-Funded Banks, effective from 1 January 2015. Implications of the revised regulations include removal of the requirement that a minimum of RMB100 million operating capital be transferred unconditionally from the overseas parent bank to the newly opened Chinese branch. In addition, in terms of the conditions attached to the right to carry out RMB-denominated activity, foreign banks are now eligible to apply to undertake local currency business after operating in China for one year—down from the previous three years. The requirement for two consecutive years of profit will be scrapped as well.
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Do Manufacturing Firms Benefit from Services FDI? – Evidence from Six New EU Member States
J. Damijan, Crt Kostevc, Philipp Marek, Matija Rojec
IWH Discussion Papers,
No. 5,
2015
Abstract
This paper focuses on the effect of foreign presence in the services sector on the productivity growth of downstream customers in the manufacturing sector in six EU new member countries in the course of their accession to the European Union. For this purpose, the analysis combines firm-level information, data on economic structures and annual national input-output tables. The findings suggest that services FDI may enhance productivity of manufacturing firms in Central and Eastern European (CEE) countries through vertical forward spillovers, and thereby contribute to their competitiveness. The consideration of firm characteristics shows that the magnitude of spillover effects depends on size, ownership structure, and initial productivity level of downstream firms as well as on the diverging technological intensity across sector on the supply and demand side. The results suggest that services FDI foster productivity of domestic rather than foreign controlled firms in the host economy. For the period between 2003 and 2008, the findings suggest that the increasing share of services provided by foreign affiliates enhanced the productivity growth of domestic firms in manufacturing by 0.16%. Furthermore, the firms’ absorptive capability and the size reduce the spillover effect of services FDI on the productivity of manufacturing firms. A sectoral distinction shows that firms at the end of the value chain experience a larger productivity growth through services FDI, whereas the aggregate positive effect seems to be driven by FDI in energy supply. This does not hold for science-based industries, which are spurred by foreign presence in knowledge-intensive business services.
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