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We investigate the transmission of central bank liquidity to bank deposits and loan spreads in Europe over the January 2006 to June 2010 period. We find evidence consistent with an impaired transmission channel due to bank risk. Central bank liquidity does not translate into lower loan spreads for high-risk banks, even as it lowers deposit rates for both high-risk and low-risk banks. This adversely affects the balance sheets of high-risk bank borrowers, leading to lower payouts, lower capital expenditures, and lower employment. Overall, our results suggest that banks’ capital constraints at the time of an easing of monetary policy pose a challenge to the effectiveness of the bank lending channel and the effectiveness of the central bank as a lender of last resort.
Job loss expectations, durable consumption and household finances : evidence from linked survey data
(2019)
Job security is important for durable consumption and household savings. Using surveys, workers express a probability that they will lose their job in the next 12 months. In order to assess the empirical content of these probabilities, we link survey data to administrative data with labor market outcomes. Workers predict job loss quite well, in particular those whose job loss is followed by unemployment. Workers with higher job loss expectations acquire cheaper cars, and are less likely to buy new cars. In line with models of precautionary saving, higher job loss expectations are associated with more savings and less exposure to risky assets.
We study how the informativeness of stock prices changes with the presence of high-frequency trading (HFT). Our estimate is based on the staggered start of HFT participation in a panel of international exchanges. With HFT presence, market prices are a less reliable predictor of future cash flows and investment, even more so for longer horizons. Further, firm-level idiosyncratic volatility decreases, and the holdings and trades by institutional investors deviate less from the market-capitalization weighted portfolio as a benchmark. Our results document that the informativeness of prices decreases subsequent to the start of HFT. These findings are consistent with theoretical models of HFTs' ability to anticipate informed order flow, resulting in decreased incentives to acquire fundamental information.
In this note, we first highlight different developments for banks under direct ECB supervision within the SSM that may prompt further investigation by supervisors. We find that banks that were weakly capitalized at the start of direct ECB supervision (1) still face elevated levels of non-performing loans, (2) are less cost-efficient and (3) reduced their share of subordinated debt financing over the last years. We then stress the importance of continuous and ongoing cost-benefit analysis regarding banking supervision in Europe. We also encourage processes to question existing supervisory practices to ensure a lean and efficient banking supervision. Finally, we underline the need of continuous and intensified coordination among regulatory bodies in the Banking Union since the efficacy of European bank supervision rests on its interplay with many different institutions.
This document was requested by the European Parliament's Committee on Economic and Monetary Affairs. It was originally published on the European Parliament’s webpage.
Do competition and incentives offered to designated market makers (DMMs) improve market liquidity? Using data from NYSE Euronext Paris, we show that an exogenous increase in competition among DMMs leads to a significant decrease in quoted and effective spreads, mainly through a reduction in adverse selection costs. In contrast, changes in incentives, through small changes in rebates and requirements for DMMs, do not have any tangible effect on market liquidity. Our results are of relevance for designing optimal contracts between exchanges and DMMs and for regulatory market oversight.
We show that banks that are facing relatively high locally non-diversifiable risks in their home region expand more across states than banks that do not face such risks following branching deregulation in the 1990s and 2000s. These banks with high locally non-diversifiable risks also benefit relatively more from deregulation in terms of higher bank stability. Further, these banks expand more into counties where risks are relatively high and positively correlated with risks in their home region, suggesting that they do not only diversify but also build on their expertise in local risks when they expand into new regions.
Self-control failure is among the major pathologies (Baumeister et al. (1994)) affecting individual investment decisions which has hardly been measurable in empirical research. We use cigarette addiction identified from checking account transactions to proxy for low self-control and compare over 5,000 smokers to 14,000 nonsmokers. Smokers self-directing their investment trade more frequently, exhibit more biases and achieve lower portfolio returns. We also find that smokers, some of which might be aware of their limited levels of self-control, exhibit a higher propensity than nonsmokers to delegate decision making to professional advisors and fund managers. We document that such precommitments work successfully.
We explore space improvements in LRP, a polymorphically typed call-by-need functional core language. A relaxed space measure is chosen for the maximal size usage during an evaluation. It Abstracts from the details of the implementation via abstract machines, but it takes garbage collection into account and thus can be seen as a realistic approximation of space usage. The results are: a context lemma for space improving translations and for space equivalences; all but one reduction rule of the calculus are shown to be space improvements, and the exceptional one, the copy-rule, is shown to increase space only moderately.
Several further program transformations are shown to be space improvements or space equivalences, in particular the translation into machine expressions is a space equivalence. These results are a step Forward in making predictions about the change in runtime space behavior of optimizing transformations in callbyneed functional languages.
We explore space improvements in LRP, a polymorphically typed call-by-need functional core language. A relaxed space measure is chosen for the maximal size usage during an evaluation. It Abstracts from the details of the implementation via abstract machines, but it takes garbage collection into account and thus can be seen as a realistic approximation of space usage. The results are: a context lemma for space improving translations and for space equivalences; all but one reduction rule of the calculus are shown to be space improvements, and the exceptional one, the copy-rule, is shown to increase space only moderately.
Several further program transformations are shown to be space improvements or space equivalences, in particular the translation into machine expressions is a space equivalence. These results are a step Forward in making predictions about the change in runtime space behavior of optimizing transformations in callbyneed functional languages.
The synchronous pi-calculus is translated into a core language of Concurrent Haskell extended by futures (CHF). The translation simulates the synchronous message-passing of the pi-calculus by sending messages and adding synchronization using Concurrent Haskell's mutable shared-memory locations (MVars). The semantic criterion is a contextual semantics of the pi-calculus and of CHF using may- and should-convergence as observations. The results are equivalence with respect to the observations, full abstraction of the translation of closed processes, and adequacy of the translation on open processes. The translation transports the semantics of the pi-calculus processes under rather strong criteria, since error-free programs are translated into error-free ones, and programs without non-deterministic error possibilities are also translated into programs without non-deterministic error-possibilities. This investigation shows that CHF embraces the expressive power and the concurrency capabilities of the pi-calculus.