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We provide an assessment of the Basel Committee on Banking Supervision (BCBS) proposal to restrict the internal ratings-based approach on bank risk and to introduce risk-weighted asset floors. If well enforced, risk-sensitive capital regulation results in a more efficient credit allocation compared to the standard approach. Thus, the internal ratings-based approach should be maintained. Further, the use of internal ratings-based output floors potentially results in unintended negative side effects. Input floors are likely a valuable tool to achieve risk-weighted assets comparability. Finally, the proposed measures have a potential detrimental impact for European banks as compared to others.
We use the Italian Survey of Household Income and Wealth, a rather unique dataset with a long time dimension of panel information on consumption, income and wealth, to structurally estimate a buffer-stock saving model. We exploit the information contained in the joint dynamics of income, consumption and wealth to quantify the degree of insurance against income risk. The estimated model implies that Italian households can insure between 89 and 95 percent of a transitory and between 7 and 9 percent of a permanent income shock. Compared to existing empirical estimates for the same dataset, our findings suggest that Italian households do not have access to significant insurance beyond self-insurance.
“Institutional Overburdening” to a large extent was a consequence of the “Great Moderation”. This term indicates that it was a period in which inflation had come down from rather high levels. Growth and employment were at least satisfying and variability of output had substantially declined. It was almost unavoidable that as a consequence expectations on future actions of central banks and their ability to control the economy reached an unprecedented peak which was hardly sustainable. Institutional overburdening has two dimensions. One is coming from exaggerated expectations on what central banks can achieve (“expectational overburdening”). The other dimension is “operational overburdening” i.e. overloading the central bank with more and more responsibilities and competences.
Private equity fund managers are typically required to invest their own money alongside the fund. We examine how this coinvestment affects the acquisition strategy of leveraged buyout funds. In a simple model, where the investment and capital structure decisions are made simultaneously, we show that a higher coinvestment induces managers to chose less risky firms and use more leverage. We test these predictions in a unique sample of private equity investments in Norway, where the fund manager's taxable wealth is publicly available. Consistent with the model, portfolio company risk decreases and leverage ratios increase with the coinvestment fraction of the manager's wealth. Moreover, funds requiring a relatively high coinvestment tend to spread its capital over a larger number of portfolio firms, consistent with a more conservative investment policy.
The term 'financialization' describes the phenomenon that commodity contracts are traded for purely financial reasons and not for motives rooted in the real economy. Recently, financialization has been made responsible for causing adverse welfare effects especially for low-income and low-wealth agents, who have to spend a large share of their income for commodity consumption and cannot participate in financial markets. In this paper we study the effect of financial speculation on commodity prices in a heterogeneous agent production economy with an agricultural and an industrial producer, a financial speculator, and a commodity consumer. While access to financial markets is always beneficial for the participating agents, since it allows them to reduce their consumption volatility, it has a decisive effect with respect to overall welfare effects who can trade with whom (but not so much what types of instruments can be traded).
Does an increase in competition increase or decrease bank stability? I exploit how the state-specific process of interstate banking deregulation lowered barriers to entry into urban banking markets and find that greater competition significantly increases bank stability. This result is robust to the inclusion of additional fixed effects and other influences, such as merger and acquisitions or diversification. Moreover, I find that greater competition reduces banks' nonperforming loans and increases bank profitability. These findings suggest that competition increases stability as it improves bank profitability and asset quality.
We investigate the role of competition on the outcome of Austrian Treasury auctions. Austria's EU accession led to an increase in the number of banks participating in treasury auctions. We use structural estimates of bidders' private values to examine the effect of increased competition on auction performance: We find that increased competition reduced bidder surplus substantially, but less than reduced form estimates would suggest. A significant component of the surplus reduction is due to more aggressive bidding. Counterfactuals establish that as competition increases, concerns regarding auction format play a smaller role.
Die aktuelle Diskussion über eine Reform der gesetzlichen Rentenversicherung vermischt Fragen nach dem durchschnittlichen Rentenniveau mit Fragen der Umverteilung von Einkommen im Ruhestand zur Bekämpfung einer etwaigen Altersarmut. Dieser Beitrag kritisiert diesen Ansatz und befasst sich mit fünf Kernaussagen: (1) Die aktuell gültige Rentenformel darf unter keinen Umständen abgeschafft werden. (2) Das Renteneintrittsalter sollte an die durchschnittliche Restlebenserwartung nach dem Erreichen des 65. Lebensjahres gekoppelt werden. (3) Eine Integration der Flüchtlinge in den Arbeitsmarkt wird das Rentenniveau in den Jahren 2030 bis 2040 stützen. (4) Sollte trotz allem die Altersarmut steigen, so kann dem durch die Einführung einer Mindestrente begegnet werden. (5) Die private Altersvorsorge muss weiter gestützt werden.
This paper shows that long debt maturities eliminate equity holders’ incentives to reduce leverage when the firm performs poorly. By contrast, short debt maturities commit equity holders to such leverage reductions. However, shorter debt maturities also lead to higher transactions costs when maturing bonds must be refinanced. We show that this tradeoff between higher expected transactions costs against the commitment to reduce leverage when the firm is doing poorly motivates an optimal maturity structure of corporate debt. Since firms with high costs of financial distress benefit most from committing to leverage reductions, they have a stronger motive to issue short-term debt.
Im Nachgang der Finanz- und Wirtschaftskrise beobachten wir derzeit sehr niedrige Renditen im „sicheren“ Anlagebereich auf dem Geldmarkt und für Staatsanleihen. Gleichzeitig sind Aktienkurse massiv gestiegen und zeichnen sich seit Beginn 2015 durch eine Seitwärtsbewegung aus. Die Ursachen für diese Entwicklung sind teilweise bekannt: Niedrige Zinssätze aufgrund einer expansiven Geldpolitik gepaart mit hoher Unsicherheit an den Märkten reduzieren die Auswahl attraktiver Kapitalanlagemöglichkeiten erheblich. Doch wie wird sich die langfristige Entwicklung gestalten, wenn oder falls die Wirkungen der jüngsten Finanz- und Wirtschaftskrise nachlassen? Gibt es einen langfristigen Trend? Spiegelt sich dieser Trend etwa bereits heute in den niedrigen Renditen wider?
Vor mehr als einem Jahrzehnt, also bereits einige Jahre vor der jüngsten Finanz- und Wirtschaftskrise, wurde wiederholt die sogenannte „Asset Market Meltdown“-Hypothese postuliert. Nach dieser Hypothese würden in den dreißiger Jahren dieses Jahrhunderts die Kapitalrenditen stark sinken, wenn die „Babyboomer“-Generation in den Ruhestand gehe und infolgedessen Kapital aus dem Wertpapiermarkt abziehe. Heute wird eine ähnliche Debatte unter dem Stichwort „säkulare Stagnation“ geführt. Danach bestehe die Gefahr, dass die nächsten Jahrzehnte durch niedrige Wachstumsraten geprägt sein und negative Realzinsen gar zur Normalität werden könnten. Dieser Beitrag geht der Frage nach, inwiefern die demographische Entwicklung für eine solche Stagnation verantwortlich ist.