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Discusses, in a speech given by Lauchlin Currie at the Chicago Forum of the American Institute of Banking on February 24, 1938, behavior of deposits from the viewpoint of an…
Abstract
Discusses, in a speech given by Lauchlin Currie at the Chicago Forum of the American Institute of Banking on February 24, 1938, behavior of deposits from the viewpoint of an individual banker. Looks at some of the functions and peculiar characteristics of banking which are mainly associated with deposits. Concludes that the more accurately bankers can determine the probable variability of their deposits the more efficiently will they be able to discharge their responsibilities to their stockholders, depositors, localities and the nation at large.
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This paper aims to analyse the role of central bank digital currency (CBDC) in bank earnings management and focus on how CBDC activity might influence banks to engage in accrual…
Abstract
Purpose
This paper aims to analyse the role of central bank digital currency (CBDC) in bank earnings management and focus on how CBDC activity might influence banks to engage in accrual earnings management using loan loss provisions (LLPs) and the implications for earnings quality.
Design/methodology/approach
The paper used conceptual discourse analysis to explain the role of CBDC in bank earnings management.
Findings
Banks will use accruals, such as LLPs, to manage earnings when CBDC-induced bank disintermediation leads to a reduction in bank deposits, a reduction in bank lending and a likely reduction in reported earnings. Bank managers will mitigate the reduction in reported earnings by lowering discretionary LLPs to increase reported earnings.
Originality/value
The recent emergence of CBDC in the digital currency universe has led to increased research interest on the role of CBDC in corporations and society. This study contributes to the literature by focusing on banks, and examining the effect of CBDC on bank earnings management.
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Kumbirai Mabwe and Kalsoom Jaffar
This paper aims to present an analysis of the UK bank loans and deposits in tandem, linking the loan-to-deposit (LTD) ratio to macroprudential policy and funding restrictions. LTD…
Abstract
Purpose
This paper aims to present an analysis of the UK bank loans and deposits in tandem, linking the loan-to-deposit (LTD) ratio to macroprudential policy and funding restrictions. LTD ratio is used by micro and macroprudential authorities to address both structural (long-term) and cyclical (short-term) liquidity risks. It is an outcome of several political and economic factors and should be evaluated against this background.
Design/methodology/approach
The authors use trend analysis and panel regression to investigate LTD ratio of Major British Banking Groups from 1945 to 2012 in the midst of changing the UK Government policies.
Findings
The results show that wholesale funding, government intervention and repression were the major forces behind LTD trends.
Originality/value
The authors recommend the use of LTD as a complement to other liquidity ratios in micro and macro-prudential regulation, particularly in the context of current reforms to banking capital requirements.
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Cicilia A. Harun and Raquela Renanda Nattan
This paper aims to examine non-core deposit (NCD), or the fraction of deposit most likely to be withdrawn, based on bank liquidity behavior. NCD is an analytical component of bank…
Abstract
Purpose
This paper aims to examine non-core deposit (NCD), or the fraction of deposit most likely to be withdrawn, based on bank liquidity behavior. NCD is an analytical component of bank deposit; hence, its withdrawal rate is crucial.
Design/methodology/approach
The paper categorizes all 114 commercial banks in Indonesia using K-Median clustering and produces NCD coefficients for each cluster. Clustering result resembles the bank ownership-based grouping.
Findings
Generally, state-owned banks and private-domestic banks have smaller NCD coefficients compared to foreign-owned, joint-venture and regional government-owned banks. The NCD coefficient then can form thresholds for an event of extreme deposit withdrawal for macroprudential surveillance.
Originality/value
NCD is an analytical indicator that can be useful to manage the liquidity risk of banks; however, this indicator is rarely found in the literatures, hence not many know how to estimate the indicator.
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This study empirically demonstrates a contradiction between pillar 3 of Basel norms III and the designation of Systemically Important Banks (SIBs), also known as Too Big to Fail…
Abstract
Purpose
This study empirically demonstrates a contradiction between pillar 3 of Basel norms III and the designation of Systemically Important Banks (SIBs), also known as Too Big to Fail (TBTF). The objective of this study is threefold, which has been approached in a phased manner. The first is to determine the systemic importance of the banks under study; second, to examine if market discipline exists at different levels of systemic importance of banks and lastly, to examine if the strength of market discipline varies at different levels of systemic importance.
Design/methodology/approach
This study is based on all the public and private sector banks operating in the Indian banking sector. The Gaussian Mixture Model algorithm has been utilized to classify banks into distinct levels of systemic importance. Thereafter, market discipline has been observed by analyzing depositors' sentiments toward banks' risk (CAMEL indicators). The analysis has been performed by employing the system Generalized Method of Moments (GMM) to estimate models with different dependent variables.
Findings
The findings affirm the existence of market discipline across all levels of systemic importance. However, the strength of market discipline varies with the systemic importance of the banks, with weak market discipline being a negative externality of the SIBs designation.
Originality/value
By employing the Gaussian Mixture Model algorithm to develop a framework for categorizing banks on the basis of their systemic importance, this study is the first to go beyond the conventional method as outlined by the Reserve Bank of India (RBI).
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Certificates of deposit (CDs) are uninsured deposits that have not been protected by the Japan Deposit Insurance Corporation (DIC) since the beginning of the issuance in May 1979…
Abstract
Certificates of deposit (CDs) are uninsured deposits that have not been protected by the Japan Deposit Insurance Corporation (DIC) since the beginning of the issuance in May 1979. Thus, CDs should reflect exceedingly well banks’ failure probabilities and the risk perception of market participants among many types of depositors in Japan. Because of this, CDs issued by Japanese banks may enhance the market discipline of banking organizations. This is the first chapter to test the depositor discipline hypothesis using Japanese bank data from the financial year 1998 to the financial year 2003 . The chapter develops reduced-form models that describe how interest rates and the quantity of CDs may be related to banks’ financial measures. Among the Japanese CAMEL ratings, the chapter finds that CD interest rates are sensitive to the capital adequacy ratio (CAR) and that CD quantities are sensitive to ROA. The chapter also insists that CD holders in Japan are sensitive to bank risks and exercise disciplinary power to impose market discipline that compliments regulatory discipline.
This paper aims to examine and compare the impact of foreign direct investment (FDI) inflows on bank deposits in aggregate as well as at the level of conventional and Islamic banks…
Abstract
Purpose
This paper aims to examine and compare the impact of foreign direct investment (FDI) inflows on bank deposits in aggregate as well as at the level of conventional and Islamic banks in Middle East and North Africa (MENA) countries. The study also tests hypotheses of direct and indirect impacts of FDI flow and FDI stock on bank deposits.
Design/methodology/approach
Static and dynamic panel generalized methods of moments (GMM) estimation techniques are applied to analyze a large data set of 491 commercial banks (422 conventional banks and 69 Islamic banks) across 18 MENA countries between 1993 and 2017 (12,275 year observations).
Findings
Empirical results indicate that inflowing FDI flow and FDI stock have a significant negative direct impact on deposits of MENA banks. The results lend support for the direct channel hypothesis for the effect of FDI on bank deposits and find no evidence in support of the indirect channel hypothesis. FDI inflows affect bank deposits directly via increased FDI-related excessive competition in the banking market. Deposits from conventional banks appear to be more affected than those from Islamic banks. The variation may due to the fact that Islamic banks have fewer multinational corporations (MNC) customers than conventional banks and therefore are less sensitive to fluctuations in FDI.
Practical implications
From this analysis, this study concludes that foreign investments have a higher productivity than local investments in MENA region. Attracting more FDI is aimed at increasing overall national productivity through competition. However, governments would be wise to enact such a policy to maximize benefits and minimize potential harm to local industry. Furthermore, FDI policy should encourage small to medium-size banks and firms (SMEs)’ participation and linkage with multinational banks and MNCs, while upgrading research and development institutions and innovation activities to help SMEs to benefit from potential spillovers from foreign presence in the industry. In addition, the linkage and connection between SMEs and foreign firms should be strengthened and promoted by government policy.
Originality/value
This study is the first of its kind to examine the effect of FDI inflows on bank deposits. It also provides an in-depth quantitative analysis of the impact of FDI flow and FDI stock, separately, on bank deposits for both conventional and Islamic banks. It distinguishes between direct and indirect channels through which FDI inflows may affect bank deposits. The study analyzes 25 years of panel data for 491 banks (12,275 year observations) and uses both static and dynamic panel GMM estimation techniques to analyze the data.
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Beenish Akhtar, Waheed Akhter and Muhammad Shahbaz
The purpose of this paper is to examine the impact of base lending rate (BLR), consumer prices, gross domestic product, money supply (M3), Karachi stock exchange composite index…
Abstract
Purpose
The purpose of this paper is to examine the impact of base lending rate (BLR), consumer prices, gross domestic product, money supply (M3), Karachi stock exchange composite index, KIBOR, and profit rate of Islamic banks on deposits of both conventional and Islamic banks in Pakistan.
Design/methodology/approach
Quarterly data of six years (2006-2011) are obtained from 30 banks, consisting of 25 conventional and five Islamic banks. The short-run as well as long-run relationships among these variables are examined by utilizing advanced time series approach. Bounds testing and autoregressive distributed lag have been used to examine cointegration and error correction framework for short-run dynamics.
Findings
The empirical results reveal that variables such as interest rate of conventional banks, profit of Islamic banks, consumer prices, M3, and BLR have different impact on conventional and Islamic bank deposits. Depositors of conventional and Islamic banks are sensitive to the returns received on deposits. A boost in interest rate increases the deposits of conventional banks but decreases those of Islamic banks.
Originality/value
This study signifies that customers of Islamic banks are motivated by profit. This indicates the normal behavior of customers, hence endures the substitution effect in conventional system. The study has important implications for Islamic banks to offer more competitive rates of profit with respect to the interest rate of conventional banks in order to collect more deposits. It also identifies relevant policy implication for the central bank of the country.
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Having been hailed as the most important contribution to stabilising the US financial system after the 1929—33 crash, deposit insurance is now being blamed for financial…
Abstract
Having been hailed as the most important contribution to stabilising the US financial system after the 1929—33 crash, deposit insurance is now being blamed for financial destabilisation, particularly in emerging markets. This paper focuses on the relationship between deposit insurance and systemic stability in the banking system, drawing on recent experience in the USA, Europe and Japan. The conclusion is that if there is an embedded perception that in the last resort depositors will be protected beyond insurance limits then market‐orientated solution to the problems of ‘moral hazard’ and excessive risk taking cannot work.