Download or read book Are the Borrowing Costs of Large Financial Firms Unusual written by Federal Reserve Federal Reserve Board and published by CreateSpace. This book was released on 2015-04-27 with total page 64 pages. Available in PDF, EPUB and Kindle. Book excerpt: Estimates of investor expectations of government support of large financial firms are often based on large financial firms' lower borrowing costs relative to smaller financial firms. Using pricing data on credit default swaps (CDS) and corporate bonds over the period 2004 to 2013, however, we find that the CDS and bond spreads of financial firms are no more sensitive to borrower size than the spreads of non-financial firms. Outside of the financial crisis period, spreads are more sensitive to borrower size in several non-financial industries. We find that size-related differences in spreads are partially driven by higher liquidity and recovery rates of larger borrowers. Prior to the financial crisis, we also find that financial firms exhibited generally lower spreads that were less sensitive to size than spreads for several other industries. Our results suggest that estimates of implicit government guarantees to financial firms may overemphasize size- related borrowing cost differentials. However, our analysis also suggests that, prior to the financial crisis, investor expectations of government support, or generally reduced risk perceptions, may have reduced borrowing costs for the financial industry as a whole.

Download or read book Are the Borrowing Costs of Large Financial Firms Unusual written by Federal Reserve Federal Reserve Board and published by Createspace Independent Publishing Platform. This book was released on 2015-12-22 with total page 64 pages. Available in PDF, EPUB and Kindle. Book excerpt: Estimates of investor expectations of government support of large financial firms are often based on large financial firms' lower borrowing costs relative to smaller financial firms. Using pricing data on credit default swaps (CDS) and corporate bonds over the period 2004 to 2013, however, we find that the CDS and bond spreads of financial firms are no more sensitive to borrower size than the spreads of non-financial firms. Outside of the financial crisis period, spreads are more sensitive to borrower size in several non-financial industries. We find that size-related differences in spreads are partially driven by higher liquidity and recovery rates of larger borrowers. Prior to the financial crisis, we also find that financial firms exhibited generally lower spreads that were less sensitive to size than spreads for several other industries. Our results suggest that estimates of implicit government guarantees to financial firms may overemphasize size- related borrowing cost differentials. However, our analysis also suggests that, prior to the financial crisis, investor expectations of government support, or generally reduced risk perceptions, may have reduced borrowing costs for the financial industry as a whole.

Download or read book Are the Borrowing Costs of Large Financial Firms Unusual written by Javed I. Ahmed and published by . This book was released on 2015 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Estimating the Costs of Financial Regulation written by Mr.Andre Santos and published by International Monetary Fund. This book was released on 2012-09-11 with total page 43 pages. Available in PDF, EPUB and Kindle. Book excerpt: Staff Discussion Notes showcase the latest policy-related analysis and research being developed by individual IMF staff and are published to elicit comment and to further debate. These papers are generally brief and written in nontechnical language, and so are aimed at a broad audience interested in economic policy issues. This Web-only series replaced Staff Position Notes in January 2011.

Download or read book Missallocation and Financial Frictions written by Simon Gilchrist and published by . This book was released on 2012 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: Financial frictions distort the allocation of resources among productive units--all else equal, firms whose financing choices are affected by such frictions face higher borrowing costs than firms with ready access to capital markets. As a result, input choices may differ systematically across firms in ways that are unrelated to their productive efficiency. We propose an accounting framework that allows us to assess empirically the magnitude of the loss in aggregate resources due to such misallocation. To a second-order approximation, the framework requires only information on the dispersion in borrowing costs across firms, which we measure--for a subset of U.S. manufacturing firms--directly from the interest rate spreads on their outstanding publicly-traded debt. Given the observed dispersion in borrowing costs, our approximation method implies a relatively modest loss in efficiency due to resource misallocation--on the order of 1 to 2 percent of measured total factor productivity (TFP). In our framework, the correlation between firm size and borrowing costs has no bearing on TFP losses under the assumption that financial distortions and firm-level efficiency are jointly log-normally distributed. To take into account the effect of covariation between firm size and borrowing costs, we consider a more general framework, which dispenses with the assumption of log-normality and which implies somewhat higher estimates of the resource losses--about 3.5 percent of measured TFP. Counterfactual experiments indicate that dispersion in borrowing costs must be an order of magnitude higher than that observed in the U.S. financial data, in order for misallocation--arising from financial distortions--to account for a significant fraction of measured TFP differentials across countries.

Download or read book Missallocation and Financial Frictions written by Simon Gilchrist and published by . This book was released on 2012 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: Financial frictions distort the allocation of resources among productive units-all else equal, firms whose financing choices are affected by such frictions face higher borrowing costs than firms with ready access to capital markets. As a result, input choices may differ systematically across firms in ways that are unrelated to their productive efficiency. We propose an accounting framework that allows us to assess empirically the magnitude of the loss in aggregate resources due to such misallocation. To a second-order approximation, the framework requires only information on the dispersion in borrowing costs across firms, which we measure-for a subset of U.S. manufacturing firms-directly from the interest rate spreads on their outstanding publicly-traded debt. Given the observed dispersion in borrowing costs, our approximation method implies a relatively modest loss in efficiency due to resource misallocation-on the order of 1 to 2 percent of measured total factor productivity (TFP). In our framework, the correlation between firm size and borrowing costs has no bearing on TFP losses under the assumption that financial distortions and firm-level efficiency are jointly log-normally distributed. To take into account the effect of covariation between firm size and borrowing costs, we consider a more general framework, which dispenses with the assumption of log-normality and which implies somewhat higher estimates of the resource losses-about 3.5 percent of measured TFP. Counterfactual experiments indicate that dispersion in borrowing costs must be an order of magnitude higher than that observed in the U.S. financial data, in order for misallocation-arising from financial distortions-to account for a significant fraction of measured TFP differentials across countries.

Download or read book The Financial Crisis Inquiry Report written by Financial Crisis Inquiry Commission and published by Cosimo, Inc.. This book was released on 2011-05-01 with total page 692 pages. Available in PDF, EPUB and Kindle. Book excerpt: The Financial Crisis Inquiry Report, published by the U.S. Government and the Financial Crisis Inquiry Commission in early 2011, is the official government report on the United States financial collapse and the review of major financial institutions that bankrupted and failed, or would have without help from the government. The commission and the report were implemented after Congress passed an act in 2009 to review and prevent fraudulent activity. The report details, among other things, the periods before, during, and after the crisis, what led up to it, and analyses of subprime mortgage lending, credit expansion and banking policies, the collapse of companies like Fannie Mae and Freddie Mac, and the federal bailouts of Lehman and AIG. It also discusses the aftermath of the fallout and our current state. This report should be of interest to anyone concerned about the financial situation in the U.S. and around the world.THE FINANCIAL CRISIS INQUIRY COMMISSION is an independent, bi-partisan, government-appointed panel of 10 people that was created to "examine the causes, domestic and global, of the current financial and economic crisis in the United States." It was established as part of the Fraud Enforcement and Recovery Act of 2009. The commission consisted of private citizens with expertise in economics and finance, banking, housing, market regulation, and consumer protection. They examined and reported on "the collapse of major financial institutions that failed or would have failed if not for exceptional assistance from the government."News Dissector DANNY SCHECHTER is a journalist, blogger and filmmaker. He has been reporting on economic crises since the 1980's when he was with ABC News. His film In Debt We Trust warned of the economic meltdown in 2006. He has since written three books on the subject including Plunder: Investigating Our Economic Calamity (Cosimo Books, 2008), and The Crime Of Our Time: Why Wall Street Is Not Too Big to Jail (Disinfo Books, 2011), a companion to his latest film Plunder The Crime Of Our Time. He can be reached online at www.newsdissector.com.

Download or read book The Oxford Handbook of Banking written by Allen N. Berger and published by Oxford University Press, USA. This book was released on 2019-10 with total page 1309 pages. Available in PDF, EPUB and Kindle. Book excerpt: The Oxford Handbook of Banking provides an overview and analysis of state-of-the-art research in banking written by leading researchers in the field. This Handbook will appeal to graduate students of economics, banking and finance, academics, practitioners and policy makers. Consequently, the book strikes a balance between abstract theory, empirical analysis, and practitioner and policy-related material. The handbook is split into five parts. Part I, The Theory of Banking, examines the role of banks in the wider financial system, why banks exist, how they function, and their legal and governance structures. Part II entitled Regulatory and Policy Perspectives discusses monetary policy, prudential regulation and supervision, and antitrust policy. Part III of the book deals with bank performance. A number of issues are assessed including efficiency, financial innovation and technological change, globalization and ability to deliver small business, consumer, and mortgage lending services. Part IV of the book provides an overview of macroeconomic perspectives in banking. This part of the book includes a discussion of the determinants of bank failures and crises, and the impact on financial stability, institutional development, and economic growth. Part V examines International Differences In Banking Structures And Environments. This part of the handbook examines banking systems in the United States, Western Europe, Transition countries, Latin America, Japan and the Developing nations of Asia.

Download or read book Bank Capital and Liquidity Regulation written by United States. Congress. Senate. Committee on Banking, Housing, and Urban Affairs and published by . This book was released on 2017 with total page 120 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Would Collective Action Clauses Raise Borrowing Costs An Update and Additional Results written by Ashoka Mody and published by . This book was released on 2016 with total page 18 pages. Available in PDF, EPUB and Kindle. Book excerpt: Collective action clauses raise borrowing costs for low-rated borrowers and lower them for high-rated borrowers. This result holds for all developing country bonds and also for the subset of sovereign bond issuers.It is easy to say that the International Monetary Fund should not resort to financial rescue for countries in crisis; this is hard to do when there is no alternative. That is where collective action clauses come in. Collective action clauses are designed to facilitate debt restructuring by the principals - borrowers and lenders - with minimal intervention by international financial institutions. Despite much discussion of this option, there has been little action. Issuers of bonds fear that collective action clauses would raise borrowing costs.Eichengreen and Mody update earlier findings about the impact of collective action clauses on borrowing costs. It has been argued that only in the past year or so have investors focused on the presence of these provisions and that, given the international financial institutions' newfound resolve to bail in investors, they now regard these clauses with trepidation.Extending their data to 1999, Eichengreen and Mody find no evidence of such changes but rather the same pattern as before: Collective action clauses raise the costs of borrowing for low-rated issuers but reduce them for issuers with good credit ratings. Their results hold both for the full set of bonds and for bonds issued only by sovereigns.They argue that these results should reassure those who regard collective action clauses as an important element in the campaign to strengthen international financial architecture.This paper - a product of the Development Prospects Group - is part of a larger effort in the group to analyze international capital flows. The study was funded by the Bank's Research Support Budget under the research project Pricing of Bonds and Bank Loans in the Market for Developing Country Debt. The authors may be contacted at [email protected] or [email protected].

Download or read book Enterprise Size Financing Patterns and Credit Constraints in Brazil written by Anjali Kumar and published by . This book was released on 2005 with total page 78 pages. Available in PDF, EPUB and Kindle. Book excerpt: Investigates the importance of firm size with respect to accessing credit. The principal findings are that size strongly affects access to credit compared to firm performance, and other factors, such as management education, location or the industrial sector to which the firm belongs. Additional findings are that the impact of size on access to credit is greater for longer term loans and that public financial institutions are more likely to lend to large firms. Finally, financial access constraints may have a less significant differential impact across firms of different sizes than other constraints, though cost of finance as a constraint is very important.

Download or read book Fighting Financial Crises written by Gary B. Gorton and published by University of Chicago Press. This book was released on 2021-05-11 with total page 245 pages. Available in PDF, EPUB and Kindle. Book excerpt: If you’ve got money in the bank, chances are you’ve never seriously worried about not being able to withdraw it. But there was a time in the United States, an era that ended just over a hundred years ago, when bank customers had to pay close attention to the solvency of the banking system, knowing they might have to rush to retrieve their savings before the bank collapsed. During the National Banking Era (1863–1913), before the establishment of the Federal Reserve, widespread banking panics were indeed rather common. Yet these pre-Fed banking panics, as Gary B. Gorton and Ellis W. Tallman show, bear striking similarities to our recent financial crisis. Fighting Financial Crises thus turns to the past to better understand our uncertain present, investigating how panics during the National Banking Era played out and how they were eventually quelled and prevented. The authors then consider the Fed’s and the SEC’s reactions to the recent crisis, building an informative new perspective on how the modern economy works.

Download or read book Powering the Digital Economy Opportunities and Risks of Artificial Intelligence in Finance written by El Bachir Boukherouaa and published by International Monetary Fund. This book was released on 2021-10-22 with total page 35 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper discusses the impact of the rapid adoption of artificial intelligence (AI) and machine learning (ML) in the financial sector. It highlights the benefits these technologies bring in terms of financial deepening and efficiency, while raising concerns about its potential in widening the digital divide between advanced and developing economies. The paper advances the discussion on the impact of this technology by distilling and categorizing the unique risks that it could pose to the integrity and stability of the financial system, policy challenges, and potential regulatory approaches. The evolving nature of this technology and its application in finance means that the full extent of its strengths and weaknesses is yet to be fully understood. Given the risk of unexpected pitfalls, countries will need to strengthen prudential oversight.

Download or read book The Federal Reserve System Purposes and Functions written by Board of Governors of the Federal Reserve System and published by . This book was released on 2002 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: Provides an in-depth overview of the Federal Reserve System, including information about monetary policy and the economy, the Federal Reserve in the international sphere, supervision and regulation, consumer and community affairs and services offered by Reserve Banks. Contains several appendixes, including a brief explanation of Federal Reserve regulations, a glossary of terms, and a list of additional publications.

Download or read book Essays on the ECB Monetary Policy s Impact on Non Financial Firms written by Lior Cohen and published by . This book was released on 2020 with total page 145 pages. Available in PDF, EPUB and Kindle. Book excerpt: "In recent years, one of the main problems the European Economic and Monetary Union (EMU) has been facing is slow economic growth stemming, in part, from subdued investments despite interest rates falling below the zero-lower bound (ZLB). Summers (2013) brought back the term "secular stagnation" - first coined by Hansen (1939) - to describe the United States' economic environment following the 2008-2009 Great Recession, in which a central bank is unable to reduce interest rates enough to stimulate investment and consumption. In recent years, another term, "liquidity trap", has also gained popularity to characterize an economy where short-term interest rates are at the ZLB, and in effect, rendering conventional monetary policy incapable of stimulating growth. Indeed, this topic has fostered extensive research on ways unconventional monetary policies could stimulate an economy (see, for example, Dominguez et al. (1998), Bernanke et al. (2004), and Eggertsson and Krugman (2012)). The European Central Bank (ECB) has been trying to ameliorate financial conditions and restore confidence in the EMU, especially after the 2011-2012 Euro Debt crisis. On July 26th, 2012 the then President of the ECB, Mario Draghi, stated the most important three words ever uttered by a central banker that he was going to do "whatever it takes" to save the Euro. Since then, the ECB has introduced an array of conventional and unconventional monetary policies to maintain the EMU project. Some of these policies include slashing interest rates below the ZLB, implementing the longer-term refinancing operations (LTRO), and targeted longer-term refinancing operations (TLTRO), and introducing quantitative easing (QE). However, were these policies successful in encouraging investment and easing financial conditions? In this thesis, we try to answer this question from the perspective of non-financial firms. The analysis of the ECB's unconventional policies - mainly of QE - has been widely researched, especially their effect on borrowing costs in general and government bond yields in particular (see Albu et al. (2014), De Santis (2020), Jäger and Grigoriadis (2017), and Krishnamurthy et al. (2017), among others). However, the research on corporations has been somewhat limited, although non-financial corporations (NFCs) are a vital sector, particularly for investments. In this thesis, we focus on the ECB's interest rate policy and its QE programmes, especially the public sector purchase programme (PSPP), and the corporate sector purchase programme (CSPP).The PSPP, first introduced on January 22nd, 2015, aimed to lower long-term sovereign bond yields by purchasing sovereign debt at an average pace of 47 billion euros a month from March 2015 to December 2018 . In total, the ECB purchased over 2.2 trillion euros worth of government bonds of EMU countries. This asset purchase programme accounted for 47% of ECB's balance sheet. Another vital purchase programme was the CSPP. Under this program, the ECB purchased NFC debt at a monthly pace of 5.8 billion euros from June 2016 to December 2018 for a total of 178-billion-euro worth of European corporate bonds. This programme's goal was to lower NFCs' borrowing costs and to induce corporate borrowing and investment spending.This thesis consists of three independent chapters, albeit with an overarching theme of investigating the impact of ECB's policies on NFCs. In Chapter 2, titled Has ECB's monetary policy prompted NFCs to invest, or pay dividends?, we take a broad view of the influence of the ECB's conventional and unconventional policies on NFCs' decisions on debt holdings, investments, and dividends. Toward this end, we use a unique dataset comprised of income statements and balance sheets of leading NFCs' operating in the EMU from the four largest economies, Germany, France, Italy, and Spain. Chapter 2 contributes to the literature by shedding light on the ECB monetary policies' long-term effect on NFCs' leverage and capital allocation - subjects that, to the best of our knowledge, have yet to be methodically investigated over such an extended period and encompasses the ECB's unconventional policies. The main results in Chapter 2 suggest that the ECB's monetary policies have encouraged firms to raise their debt burden, especially after the global recession of 2008. The ECB's policies, particularly after 2011, also seem to have led NFCs to allocate more resources not only to capital spending but also to shareholder distribution.Chapter 3, titled Examining the effect of ECB monetary policy on non-financial corporations' credit risk premia examines the usefulness of the ECB's policies in ameliorating financial conditions and reducing the risk premia of NFCs. We collected daily credit default swaps (CDSs) prices of publicly-traded European NFCs to analyze the short-term effects of the policy announcements between June 2nd, 2014, and December 30th, 2016. We also test the long-term impact of the ECB's policies on NFCs' CDS prices using monthly data from January 2008 to February 2018. Chapter 3 contributes to the literature by being the first to methodically investigate the mechanism of the ECB's monetary policy's short-term and long-term impact on NFCs' CDS prices. By doing so, we assess the ECB's various policies' transmission mechanism to NFCs' risk premia - a critical factor in NFCs' borrowing costs. The main findings in Chapter 3 are that the ECB's asset purchase programme announcements seem to have an immediate impact on CDS daily prices; these announcements had a stronger effect, especially after the PSPP started in March 2015. From 2008 to 2012 and from 2015 to 2018, the ECB's interest rate policy had statistically and economically significant effects in reducing CDS prices. We also find that some of ECB's asset purchase programmes, such as the PSPP, had a statistically significant long-term impact on CDSs. These findings indicate that some of the ECB's policies were effective in reducing NFCs' risk premia, notably since 2015, as market conditions improved. In Chapter 4, titled Bang for the QE buck: Examining the impact of ECB's corporate bond purchases on firms' credit risk, debt and investment, we focus on the CSPP. This programme, first announced in March 2016 and started by June 2016, aimed to ameliorate corporations' financial conditions and encourage NFCs to borrow and invest. Chapter 4 analyzes the CSPP's short-term and long-term effect on corporate credit risk by utilizing daily (from March to August 2016) and monthly data (June 2016- December 2018) of corporate zero-volatility, and nominal spreads. We also employ NFCs' debt covenants data to assess the pass-through of the CSPP to firms' risk of credit. We examine the CSPP's long-term effect on liquidity risk by using scaled bid-ask spread data. The data include purchased bonds under the CSPP (targeted bonds) and European bonds that were not purchased. We then analyze the CSPP's short-term and long-term impact on capital structure and capital allocation of NFCs whose bonds the ECB purchased (targeted firms) compare to European firms whose bonds were not purchased. Chapter 4 contributes to the literature by shedding light on the CSPP's short-term and long-term effect on corporate bonds' risk premia liquidity costs. Third, to the best of our knowledge, we are also the first to investigate the CSPP's long-term impact on firms' borrowing costs and corporate decisions. In Chapter 4 we find that following the CSPP announcement, targeted corporate bonds' zero-volatility spread, and nominal spread fell by 3.5 basis points (2.6%) and 4.1 basis points (4.2%), respectively. Initially, the programme encouraged firms to borrow more and pay dividends; however, it did not improve investments. Throughout its implementation (June 2016-December 2018), the CSPP only marginally reduced targeted bonds' risk premia and did not lower corporate bonds' liquidity risk. Nonetheless, it reduced targeted firms' cost of debt, improved their debt covenants, and encouraged investments. The findings in Chapter 4 suggest the CSPP did not have a persistent impact in reducing credit risk or liquidity risk in the corporate bond market; however, it had an economically significant lasting effect in lowering corporate debt cost and stimulating investment." -- TDX.

Download or read book The Limits of Convergence written by Mauro F. Guillén and published by Princeton University Press. This book was released on 2010-07-01 with total page 299 pages. Available in PDF, EPUB and Kindle. Book excerpt: This book challenges the widely accepted notion that globalization encourages economic convergence--and, by extension, cultural homogenization--across national borders. A systematic comparison of organizational change in Argentina, South Korea, and Spain since 1950 finds that global competition forces countries to exploit their distinctive strengths, resulting in unique development trajectories. Analyzing the social, political, and economic conditions underpinning the rise of various organizational forms, Guillén shows that business groups, small enterprises, and foreign multinationals play different economic roles depending on a country's path to development. Business groups thrive when there is foreign-trade and investment protectionism and are best suited to undertake large-scale, capital-intensive activities such as automobile assembly and construction. Their growth and diversification come at the expense of smaller firms and foreign multinationals. In contrast, small and medium enterprises are best fitted to compete in knowledge-intensive activities such as component manufacturing and branded consumer goods. They prosper in the absence of restrictions on export-oriented multinationals. The book ends on an optimistic note by presenting evidence that it is possible--though not easy--for countries to break through the glass ceiling separating poor from rich. It concludes that globalization encourages economic diversity and that democracy is the form of government best suited to deal with globalization's contingencies. Against those who contend that the transition to markets must come before the transition to ballots, Guillén argues that democratization can and should precede economic modernization. This is applied economic sociology at its best--broad, topical, full of interesting political implications, and critical of the conventional wisdom.

Download or read book Survey of Current Business written by and published by . This book was released on 1998 with total page 692 pages. Available in PDF, EPUB and Kindle. Book excerpt: