Academic literature on the topic 'Bank balance sheet'

The diploma thesis deals with the issue of financial performance of central banks. Central banking is generally considered as a profitable part of financial system. However, this paper focuses on the loss-making central banks and emphasizes the examples of central banks with large accumulated financial losses. Relationship between the quality of balance sheet assets and financial performance of central banks is closely examined in the thesis. Alongside, it analyses the impact of negative financial performance on the main objectives of central bank, in the role of monetary authority. Effectiveness of monetary policy is conditioned by many factors, among them are independence of central bank, the level of development of financial markets - central bank operates in, analytical skills of employees and etc. However, the case, where financial performance of central bank is discussed in connection with monetary policy performance, is extremely rare. The primary goal of this diploma thesis is to reveal and describe the main ways in which financial performance of the central bank influences monetary policy decisions. It also tries to find out whether there is hidden threat of a damaging impact on the decisions in case the central bank accumulates the negative financial results.

This research study focus on two of the widely discussed culprits of instability in the banking system: the first concern the possible relation between policy rates and bank risk-taking incentives, the second investigates off balance sheet activities (OBS) and their implication on bank soundness. The dissertation is divided in two parts: in part 1 I study the transmission channel of monetary policy through the risk-taking channel. Chapter 1 of this part is devoted to present a better understanding of the risk-taking channel, to present the different theoretical foundations that back up this channel and to discuss potential difficulties related to empirical evidence. Chapter 2 and 3 present empirical studies on the risk-taking channel using US loan surey and call report data. The key finding is that loan officers relax lending standards when interest rates are low also longer periods of negative real interest rates are characterised by asset expansion with a move to riskier assets. Part 2 studies banks' OBS activites and investigate their implication for the soundness of US commercial banks. Chapter 1 in Part 2 provides a detailed account of these activites showing the widespread use of credit substitutes and other derivative instruments. Chapter 2 investigates the implication of different types of OBS activites on bank risk exposure and bank failure during the 2001-2010 period. The main finding is that different types of off balance sheet activities impact differently bank risk exposure: Credit subsitutes enhance bank loans portfolio and bank performance but put more pressure on bank liquidity. Derivatives contracts implicate higher risk exposure for small banks<br>Cette thèse étudie deux facteurs susceptibles de fragiliser le secteur bancaire : d'une part le laxisme de la politique monétaire pouvant modifier la perception ou l'aversion pour le risque des banques, d'autre part le développement des activités hors bilan et leurs implications sur la stabilité bancaire. La thèse se compose de deux parties : la partie 1 constituée de trois chapitres étudie la transmission de la politique monétaire par la canal de la prise de risque pour le cas des banques commerciales américaines. Les résultats empiriques présentés dans les chapitres 2 et 3 montrent que des niveaux bas de taux d'intérêts sont associés à un assouplissement des politiques d'octroi de crédit pratiquées par les banques et une expansion de l'actif caractérisé par une préférence pour les investissements risqués. La partie 2 étudie l'implication des activités hors bilan des banques commerciales américaines sur la stabilité des banques. Le chapitre 1 présente en détail ces activités montrant la large utilisation des substituts de crédit et autres instruments dérivés par les banques américaines. Le chapitre 2 examine l'implication des différents types d'activités hors bilan sur l'exposition au risque des banques au cours de la période 2001-2010. Les résultats empiriques montrent que l'incidence des activités hors bilan diffère selon le type de l'activité en question : les substituts de crédits diminuent le risque de crédit, améliore la performance des banques en revanche ils mettent plus de pression sur la liquidité bancaire. Les produits dérivés impliquent une plus grande exposition au risque pour les petites banques

The global financial crisis cost the world economy an estimated 17 trillion dollars. (Wiese, 2012). This crisis was partly due to banks inability to have the required liquidity on hand to meet their necessary obligations. The Bank of International Settlements (BIS) released Basel III requirements in 2010 to mitigate the risk of the liquidity problems that banking sectors experienced during the 2007-2008 financial crisis, happening again. This research seeks to understand the impact of one aspect of the Basel III regulation, namely the Liquidity Coverage Ratio (LCR), on the South African (SA) banking sectors balance sheet structure. This research aims to ascertain whether there has been a significant reduction in credit extension in the SA economy, whether there has been a significant increase in the maturity term structure of bank liabilities from asset managers and whether the type of depositor that banks seek to attract has significantly changed in line with previous research done in the US, UK and the EU. The research follows a case study methodology which analyses the SA banking sector as a single case. Monthly, publically available data was sourced from the SA Reserve Bank and the testing of the hypotheses was carried out using an Autoregressive Integrated Moving Average Approach (ARIMA). The results show that the implementation of the LCR has not had a significant impact on credit extension in the SA economy. The SA banking sectors reliance on funding from asset managers did reduce, however, not significantly as a result of the regulations. The proportion of medium and long term funding that bank receive from asset managers decreased contradicting the literature on the subject<br>Mini Dissertation (MBA)--University of Pretoria, 2017.<br>km2018<br>Gordon Institute of Business Science (GIBS)<br>MBA<br>Unrestricted

The credit channel and its significance in the monetary policy transmission mechanism has been a point of contention among policy makers and economists for many years. In the early stages of this debate the monetarist view shaped thinking on the topic and cultivated the belief that the money supply is exogenously determined and that commercial banks playa minor role in the monetary transmission process. However, over the years, the credit view presented by Bernanke and Blinder (1988) has gained momentum. In contrast to the monetarist view, the credit view abandons the assumption of perfect substitutability and argues that due to their credit provision activities, financial institutions playa significant role in the transmission of monetary policy. The credit channel consists of two sub channels, the bank lending and balance sheet channels. In both, deposits drive loans and changes in monetary policy are effected through interest rates and their impact on borrowers' balance sheets, bank reserves, bank deposits and ultimately the quantity of bank loans supplied. Disyatat (2010) re-examines the conventional view and presents an argument against the foundation upon which the theories are based. Using this as a basis, and motivated by the vast amount of empirical literature that already exists on this topic, both in South Africa and abroad, this research provides a theoretical analysis of the credit channel and its relative importance in the monetary policy transmission mechanism. The exogenous/endogenous nature of money supply is considered and its implications for the existence and operation of the credit channel set out. It is found that, in order for a credit channel to operate efficiently in an economy, money supply should be endogenously determined. Moreover, a theoretical argument supporting Disyatat's (2010) revised credit channel is presented; it is concluded that, with a slight variation to Disyatat's proposed model, a single, unified channel exists.

Submitted by arthur mendes (agalegomendes@gmail.com) on 2013-10-30T18:04:37Z No. of bitstreams: 1 Dissertação_Final.pdf: 393524 bytes, checksum: a6e35ab46f67c3472d55a57b0bad00ab (MD5)<br>Approved for entry into archive by Janete de Oliveira Feitosa (janete.feitosa@fgv.br) on 2013-11-01T16:53:40Z (GMT) No. of bitstreams: 1 Dissertação_Final.pdf: 393524 bytes, checksum: a6e35ab46f67c3472d55a57b0bad00ab (MD5)<br>Approved for entry into archive by Marcia Bacha (marcia.bacha@fgv.br) on 2013-11-13T17:27:59Z (GMT) No. of bitstreams: 1 Dissertação_Final.pdf: 393524 bytes, checksum: a6e35ab46f67c3472d55a57b0bad00ab (MD5)<br>Made available in DSpace on 2013-11-13T17:33:26Z (GMT). No. of bitstreams: 1 Dissertação_Final.pdf: 393524 bytes, checksum: a6e35ab46f67c3472d55a57b0bad00ab (MD5) Previous issue date: 2001-06-13<br>I show that when a central bank is financially independent from the treasury and has balance sheet concerns, an increase in the size or a change in the composition of the central bank's balance sheet (quantitative easing) can serve as a commitment device in a liquidity trap scenario. In particular, when the short-term interest rate is up against the zero lower bound, an open market operation by the central bank that involves purchases of long-term bonds can help mitigate the deation and a large negative output gap under a discretionary equilibrium. This is because such an open market operation provides an incentive to the central bank to keep interest rates low in future in order to avoid losses in its balance sheet.

The financial crisis prompted widespread interest in developing a better understanding of how market and regulatory driven capital targets affect bank behaviour. Such considerations are important to assessing the effects of shocks to banks' capital ratios on their supply of financial intermediation services to the real economy, whether those shocks originate in higher regulatory capital requirements, unexpected losses, or demands from investors or counterparties. In particular, my research is relevant to the effects of changes in capital requirements or the imposition of explicitly counter-cyclical capital requirements, as proposed by the Basel III agreement. In this thesis, I describe three related research chapters focusing on how banks' actual capital ratios and long-run capital ratio targets affect bank behaviour. The first chapter uses a unique, comprehensive database of regulatory capital requirements on all UK banks to examine their effects on capital, lending and balance sheet management behaviour in the pre-crisis period 1996-2007. We find that capital requirements that include firm-specific, time-varying add-ons set by supervisors affect banks‘ desired capital ratios and that resulting adjustments to capital and lending depend on the gap between actual and target ratios. We use these results to measure the effects of a capital regime that includes features similar to those embedded in the UK framework. Our results suggest that countercyclical capital requirements may be less effective in slowing credit activity when banks can readily satisfy them with lower-quality (lower-costing) capital elements versus higher-quality common equity. Finally, we apply a simple version of our model to a small sample of large banks in the crisis period 2007-2011 and find that balance sheet adjustments to achieve target tier 1 capital ratios focused on risk-weighted assets, and changes in tier 1 and total capital played a reduced role compared to the pre-crisis period. Given the size of the UK banking sector and the global nature of many of the largest institutions in the UK banking sector, the results have implications for the ongoing debate surrounding the design and calibration of international capital standards. The second chapter assesses the relation between bank capital ratios and lending rates for the 8 largest UK banks over the period 1998-2011. The methods differ from previous literature in that they employ a dynamic error correction specification and a unique regulatory database to disentangle long- and short-run effects. There is no long-run link in pre-crisis boom times, but a strongly negative association is revealed during the stressed conditions of 2007-11 when well-capitalised banks may have benefited from lower funding costs. Higher capital ratios also have positive short-run effects on lending rates which are sizeable during crisis times. These results imply that countercyclical variations in bank capital requirements, as envisaged by Basel III, need to be very substantial to offset the procyclical reduction in the supply of bank lending during a crisis. In the third chapter the focus moves to the United States to examine the effect of capital ratios on profitability spanning several economic cycles going back to the late 1970s. Theory suggests that this relationship is likely to be time-varying and heterogeneous across banks, depending on banks‘ actual capital ratios and how these relate to their optimal (i.e., profit-maximising) capital ratios. We employ a flexible empirical framework that allows substantial heterogeneity across banks and over time. We find that the relationship is negative for most banks in most years, but turns less negative or positive under distressed market conditions. Banks with surplus capital relative to their long-run targets have strong incentives to reduce capital ratios in all periods. Similar to the second research chapter, these results have the policy implication that counter-cyclical reductions in capital requirements during busts may not be effective since, in such conditions, banks have incentives to raise capital ratios.

It has long been accepted that changes in monetary policy have real economic effects; however, the mechanism by which these policy changes are transmitted to the real economy has been the subject of much debate. Traditionally the transmission mechanism of monetary policy has consisted of various channels which include the money channel, the asset price channel and the exchange rate channel. Recent developments in economic theory have led to a relatively new channel of policy transmission, termed the credit channel. The credit channel consists of the bank lending channel as well as the balance sheet channel, and focuses on the demand for credit as the variable of interest. The credit channel is based on the notion that demanders and suppliers of credit face asymmetric information problems which create a gap between the cost of external funds and the cost of internally generated funds, referred to as the wedge. The aim here is to determine the size and lag length effects of changes in credit demand, by both firms as well as households, as a result of changes in interest rates. A secondary, but subordinate, aim is to test for a balance sheet channel of monetary policy transmission. A vector autoregressive (VAR) model is used in conjunction with causality tests, impulse response functions and variance decompositions to achieve the stated objectives. Results indicate that the interest rate elasticity of credit demand, for both firms and households, is interest inelastic and therefore the monetary policy authorities have a limited ability to influence credit demand in the short as well as medium term. In light of the second aim, only weak evidence of a balance sheet channel of policy transmission is found.

This work focuses on the problems of monetary aggregates in the Czech Republic within compilation of balance sheet items statistics of monetary financial institutions. The content of this paper comprises the methodological basis for the compilation of monetary aggregates and the overall balance sheet statistics with focus on detailed description of the procedure of compiling of this statistics in the Czech National Bank. The goal is to provide an overview of the methodology of balance sheet statistics, practical aspects of its composition and compiling of monetary aggregates.