Claudia Schwarz
- 2 August 2023
- WORKING PAPER SERIES - No. 2837Details
- Abstract
- We empirically investigated the impact of regulatory risk retention methods on credit ratings and pricing at issuance using a sample of European securitization tranches issued in the period 2011-2021. European regulation is based on the assumption that all risk retention methods homogenously align incentives and interests between originators and investors. We investigated the impact of these methods on the pricing of securitization tranches and found that investors adjust the risk premium at issuance for tranches based on different risk retention methods. We also found that credit ratings (discrepancy) differed depending on the risk retention method used. Finally, we gained a deeper insight into the risk retention methods chosen over time and concluded that originators take deal complexity and capital relief characteristics into consideration when selecting a specific method.
- JEL Code
- G12 : Financial Economics→General Financial Markets→Asset Pricing, Trading Volume, Bond Interest Rates
G21 : Financial Economics→Financial Institutions and Services→Banks, Depository Institutions, Micro Finance Institutions, Mortgages
G24 : Financial Economics→Financial Institutions and Services→Investment Banking, Venture Capital, Brokerage, Ratings and Ratings Agencies
G28 : Financial Economics→Financial Institutions and Services→Government Policy and Regulation
- 31 August 2021
- OCCASIONAL PAPER SERIES - No. 261Details
- Abstract
- Asset encumbrance is a central concept in the context of banks’ liquidity crises, as it is associated with their capacity to obtain secured funding. This occasional paper summarises the work carried out by the task force on asset encumbrance, bringing together analyses by the ECB and those national competent authorities working on the topic. First, we describe how asset encumbrance has evolved in euro area banks, focusing on country and business model aggregates. Second, we conduct an econometric analysis of the driving factors of banks’ asset encumbrance, highlighting the relevance of credit risk, the availability of high quality collateral suitable for encumbrance, capital and sovereign funding conditions. Third, we turn our focus to the asset encumbrance dynamics of banks that have experienced a crisis. The outcome of this event study analysis indicates that asset encumbrance increases in the lead-up to a crisis, partly to offset early deposit outflows. Building on these findings, we show that asset encumbrance indicators carry predictive information for bank-specific crises as part of a multivariate early warning model.
- JEL Code
- G21 : Financial Economics→Financial Institutions and Services→Banks, Depository Institutions, Micro Finance Institutions, Mortgages
G01 : Financial Economics→General→Financial Crises
G28 : Financial Economics→Financial Institutions and Services→Government Policy and Regulation
C23 : Mathematical and Quantitative Methods→Single Equation Models, Single Variables→Panel Data Models, Spatio-temporal Models
C49 : Mathematical and Quantitative Methods→Econometric and Statistical Methods: Special Topics→Other
- 26 May 2020
- FINANCIAL STABILITY REVIEW - ARTICLEFinancial Stability Review Issue 1, 2020Details
- Abstract
- It is often maintained that the recent real estate booms in many euro area countries have been accompanied by a loosening in lending standards. However, data for a thorough cross-country assessment of lending standards have been missing. This special feature uses a novel euro area dataset from a dedicated data collection covering significant institutions supervised by ECB Banking Supervision to analyse trends in real estate lending standards and derive implications for financial stability. First, lending standards for residential real estate loans in the euro area, in particular loan-to-income ratios, eased between 2016 and 2018. Given the significant deterioration in the euro area economic outlook since the coronavirus outbreak, this vulnerability seems of particular relevance. Second, lending standards appear to be looser in countries that saw stronger real estate expansions, suggesting that real estate vulnerabilities may have been growing in some euro area countries. Third, lending standards deteriorated less in countries with borrower-based macroprudential policies in place, highlighting the importance of early macroprudential policy action to help prevent the build-up of real estate vulnerabilities.
- 19 March 2019
- OCCASIONAL PAPER SERIES - No. 220Details
- Abstract
- This paper analyses the impact of lending standards for residential real estate (RRE) loans on default rates, using a novel loan-level dataset from the European DataWarehouse (EDW) that covers eight euro area countries. To the best of the authors’ knowledge, this paper is the first to use, for this purpose, a consistent set of loan-level data on loans originated in multiple euro area countries. Previous literature has used either national loan-level data, which does not allow for cross-country comparisons, or aggregate cross-country data. The dataset is first explored through an extensive descriptive analysis and this is followed by static probit regressions. The findings confirm the key influence of lending standards – in particular, loan-to-value and loan-to-income ratios at origination, original loan maturity and borrower employment status – on loan default rates. The impact of other variables, such as interest rate fixation and payment type, varies depending on the country of loan origination. These results are particularly relevant for microprudential supervisors in their ongoing assessment of banks’ credit policies. The highlighted country specificities should be taken into account in macroprudential policymaking.
- JEL Code
- C25 : Mathematical and Quantitative Methods→Single Equation Models, Single Variables→Discrete Regression and Qualitative Choice Models, Discrete Regressors, Proportions
G21 : Financial Economics→Financial Institutions and Services→Banks, Depository Institutions, Micro Finance Institutions, Mortgages
- 16 May 2017
- OCCASIONAL PAPER SERIES - No. 191Details
- Abstract
- This paper investigates the interrelations between monetary macro- and microprudential policies. It first provides an overview of the three policies, starting with their main instruments and objectives. Monetary policy aims at maintaining price stability and promoting balanced economic growth, macroprudential policies aim at safeguarding the stability of the overall financial system, while microprudential policies contribute to the safety and soundness of individual entities. Subsequently, the paper provides a simplified description of their respective transmission mechanisms and analyses the interactions between them. A conceptual framework is first presented on the basis of which the analysis of the interactions across the different policies can be demonstrated in a stylised manner. These stylised descriptions are then further complemented by model-based simulations illustrating the significant complementarities and interactions between them. Finally, the paper concludes that from a conceptual point of view there are numerous areas of interaction between the policies. These create scope for synergies, which can be reaped by sharing information and expertise across the various policy areas.
- JEL Code
- E58 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit→Central Banks and Their Policies
G28 : Financial Economics→Financial Institutions and Services→Government Policy and Regulation
- 7 August 2015
- WORKING PAPER SERIES - No. 1838Details
- Abstract
- We propose a two-stage estimation procedure to identify the effects of time-invariant regressors in a dynamic version of the Hausman-Taylor model. We first estimate the coefficients of the time-varying regressors and subsequently regress the first-stage residuals on the time-invariant regressors providing analytical standard error adjustments for the second-stage coefficients. The two-stage approach is more robust against misspecification than GMM estimators that obtain all parameter estimates simultaneously. In addition, it allows exploiting advantages of estimators relying on transformations to eliminate the unit-specific heterogeneity. We analytically demonstrate under which conditions the one-stage and two-stage GMM estimators are equivalent. Monte Carlo results highlight the advantages of the two-stage approach infinite samples. Finally, the approach is illustrated with the estimation of a dynamic gravity equation for U.S. outward foreign direct investment.
- JEL Code
- C13 : Mathematical and Quantitative Methods→Econometric and Statistical Methods and Methodology: General→Estimation: General
C23 : Mathematical and Quantitative Methods→Single Equation Models, Single Variables→Panel Data Models, Spatio-temporal Models
F23 : International Economics→International Factor Movements and International Business→Multinational Firms, International Business
- 27 May 2014
- OCCASIONAL PAPER SERIES - No. 153Details
- Abstract
- This paper analyses how accounting frameworks can affect three important areas of responsibility of many central banks, namely monetary policy, financial stability and banking supervision. The identified effects of accounting rules and accounting information on the activities of a central bank are manifold. First, the effectiveness of monetary policy crucially hinges on the financial independence of a central bank, which can be evidenced, inter alia, by its financial strength. Using a new simulation of the financial results of the European Central Bank (ECB), this paper shows that the reported annual profit and financial buffers of a central bank can be significantly affected by accounting, profit distribution and loss coverage rules. Second, in respect of financial stability, the accounting frameworks applied by commercial banks can not only affect their behaviour, but also that of financial markets. Indeed, there is evidence that accounting frameworks amplified pro-cyclicality during the recent crisis, and thus posed risks to the stability of the financial system. This being so, the accounting frameworks of credit institutions have obvious implications for central banks
- JEL Code
- E58 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit→Central Banks and Their Policies
M41 : Business Administration and Business Economics, Marketing, Accounting→Accounting and Auditing→Accounting
M48 : Business Administration and Business Economics, Marketing, Accounting→Accounting and Auditing→Government Policy and Regulation