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The framework of this paper is financial mathematics and, more specifically, the control of data fraud and manipulation with their subsequent economic effects, namely, in financial markets. The purpose of this paper is to calculate the global loss or gain, which supposes, for the borrower, a change of the interest rate while the contracted loan is in force or, in another case, the loan has finished.

The methodology used in this work has been, in the first place, a review of the existing literature on the topic of manipulability and abusiveness of the loan interest rates applied by banks; in the second place, the introduction of a mathematical-financial analysis to calculate the interests paid in excess; and, finally, the compilation of several sentences issued on the application of the so-called mortgage loan reference index (MLRI) to mortgage loans in Spain.

There are three main contributions in this paper. First, the calculation of the interests paid in excess in the amortization of mortgage loans referenced to an overvalued interest rate. Second, an empirical application shows the amount to be refunded to a Spanish consumer when amortizing his/her mortgage loan referenced to the MLRI instead of the Euro InterBank Offered Rate (EURIBOR). Third, consideration has been made to the effects and the possible solutions to the legal problems arising from this type of contract.

This research is a useful tool capable of implementing the financial calculation needed to find out overpaid interests in mortgage loans and to execute the sentences dealing with this topic. However, a limitation of this study is the lack of enough sentences on mortgage loans referenced to the MLRI to get some additional information about the number of borrowers affected by these legal sentences and the amount refunded by the financial institutions.

To the best of the authors’ knowledge, this is the first time that deviations in the payment of interests have been calculated when amortizing a mortgage.

The purpose of this paper is the analysis of the mortgage prices derived from the increase of defaults and the withdrawal of floor clauses in the mortgages offered by banking institutions in Spain. More specifically, this manuscript focuses on the evolution of the spread applied to mortgages contracted with a variable interest rate.

Two models have been considered to make a proper estimation of the yield curve to assess the loss due to the withdrawal of the floor clauses and quantify the component of the price used to cover the interest rate risk. Two different scenarios have been considered to avoid an underestimation of the aforementioned valuation.

The authors have shown that the increase in the percentage of doubtful mortgages has led to an increase in the spread of adjustable-rate mortgages. Moreover, the authors have shown that around 40 per cent of spreads are used to cover the interest rate risk.

The main contribution of this manuscript is the quantification of the loss expected by lenders and its impact in the spread. Due to this fact, the loan spread can be disaggregated into a component dependent on the credit risk associated with the borrower, and another component dependent on the interest rate risk to which the lender is exposed.

Analyses the structural behaviour of money and capital market interest rates 1999‐2001 in the European Monetary Union. Finds that the positive correlations between interest rates of different time periods get stronger as the time periods get closer, derives the principal components which explain most of the variability and applies time series analysis to the model to produce forecasts which come very close to actual values. Develops a model of the Down Jones EURO STOXX financial sector index which also shows reliable forecasting power except for the Feb 2001 period when stock markets were “in turmoil”. Compares the returns for one‐month holdings of zero‐coupon European government bonds with different maturities for various return, risk and risk‐return measures; and finds that a one‐month holding of a two‐year bond is the best investment.

This chapter investigates the impact of policy interest rate news from the U.S. Federal Reserve (Fed) and the European Central Bank (ECB) on stock returns and volatilities of U.S. NYSE and German DAX listed commercial banks. We find that Fed news has the most influence on both U.S. and German listed bank stocks and an unexpected policy rate increase (decrease) lowers (raises) returns and raises volatility in the majority of cases. On the other hand, ECB news generally increases bank stock volatility in the United States but has little impact within its own domestic banking industry. While our results for the U.S. listed banks confirm that their stock prices are more responsive in bad economic times and also during periods of monetary tightening, we find disparities for German banks suggesting that U.S. and European banking industries respond heterogeneously to monetary policy news but the Global Financial Crisis increased the sensitivity of all banks to monetary policy news.

The authors aim to investigate the cointegrating relationship of the government bond yields, driven by the common money factors in European Monetary Union (EMU).

By adopting a dynamic ARDL transformation, the paper provides short-/long-term estimates of bond yields convergence before the burst of the current debt crisis. It also investigates how the degree of convergence between bond yields, driven by money factors, is affected in short/long runs.

The findings indicate that the introduction of the common currency has not a uniform effect on the bond yields, and there is a nominal convergence between EMU bond yields based on money market determinants.

The current financial crisis indicates that the EMU bond market convergence was temporary and it can be highly affected by an exogenous shocks and the sentiment of international investors. The findings imply the necessity for a common monetary and fiscal policy in Euro zone countries.

The paper aims to determine the impact of bank-specific, industry-specific and macro-specific determinants on the profitability indicators – return on assets (ROA) and ratio net-interest margin (RNIM).

This research sample includes selected Croatian banks, and the empirical analysis covers the period 2007-2014. Based on the reliable and robust econometric tests, dynamic estimation technique (DOLS) was run to estimate the profitability models, by using of ROA and RNIM as dependent variables, which also include lagged dependent variables to capture the speed of mean reversion in terms of profitability, respectively.

The results proved the crucial positive impact of assets size (economies of scale), loan portfolio and GDP growth on the banks’ profitability. Further, the negative impacts on profitability have risks and administrative costs. This paper shows the positive impact of capital adequacy ratio (CAR) and leverage on ROA and RNIM, as well as the correlation between market concentration and banks’ profitability.

Basically, Croatian banks should improve operative efficiency and risk management practice to increase their profitability. In addition, banks should carefully balance between capital base and risk exposure on the one hand and take advantage of using relative cheaper deposits and borrowed funds instead of using more expensive equity. This conclusion is reasonable, keeping in mind that the Croatian financial market does not punish banks for an extra risk exposure caused by market imperfections. Finally, the regulatory authority in Croatia should impose some additional antitrust measures to increase competition in the banking market.

Although a bunch of existing studies explain the determinants of bank profitability from different perspectives, this paper conducts a specific empirical analysis about the determinants of bank profitability in Croatia. In addition, this paper provides a good synthesis of the relevant empirical and theoretical studies from this domain.

The main purpose of this paper is to study the effect of consumer expertise on mortgage loan prices. We argue that consumer expertise should affect price due to two reasons: (1) loan mortgage prices in non-price-regulated settings are usually the result of a bank-customer negotiation process; and (2) a mortgage loan is a complex product.

Data on mortgage loan prices were used for a sample of 1,055 households for 2005 (Bank of Spain Survey of Household Finances, EFF-2005).

The regression results indicate that consumer expertise-related metrics are highly significant as predictors of mortgage loan prices. Findings also indicate that cost-related variables and a measure of risk with low discrimination power (i.e. having a permanent employment contract, which accounts for 70 per cent of contracts in Spain) affect price. Surprisingly, more sophisticated measures of credit risk do not have such a significant impact on mortgage prices.

Empirical results refer to the credit conditions prior to the financial crisis and could shed some light on the factors that led to it.

Findings seem to indicate that, in the period under study, bank managers prioritized capturing new business in the short-term against normative prescriptions, which suggest that price should be credit-risk adjusted (financial literature) and long-term consumer potential adjusted (marketing literature). The post-2008 difficult economic situation of Spanish banks (linked to an excessive portfolio of mortgage loans granted at very low prices) shows that these strategies were wrong.

An uncommon perspective was adopted. The importance of consumer expertise-related variables on price has been underemphasized by prior research. The effect of consumer expertise is assessed by using a large and comprehensive database.

This paper aims to contribute to the literature on the determinants of bank-specific insolvency risk.

By applying a dynamic two-step System GMM estimator on a novel, representative panel of 339 Finnish unlisted cooperative and savings banks over the period 2002-2018.

This study contributes to the literature on the determinants of bank-specific insolvency risk by applying a dynamic two-step System GMM estimator on a novel, representative panel of 339 Finnish unlisted cooperative and savings banks over the period 2002-2018. The key findings suggest that Finnish banks have become less fragile under the renewed EU banking regulation. In particular, the CRD IV has affected banks’ equity levels. This study also captures the detrimental effect of cost inefficiency as well as a positive relationship between the income diversification and insolvency risk. A negative relationship between the GDP growth rate and the insolvency risk is also reported although results suggest that the effect is not immediate.

This result is discussed together with other macroeconomic factors. The consequent conclusion underlines the fundamental significance of overall macroeconomic dynamics. From the perspective of regulatory harmonization, more research is needed to address the level of homogeneity of macroeconomic dynamics between different geographical and cultural regions.

What caused the mid-2000s world commodity price “bubble” and the recent commodity price growth? Some have suggested that rapid global industrial growth over the past decade is the key driver of price growth. Others have argued that high commodity prices are a result of excessively loose monetary policy. The purpose of this paper is to extend the current research in this area by incorporating emerging economies, the BRIC (Brazil, Russia, India, and China) nations specifically, into global measures.

The paper uses a vector error correction (VEC) model and computes variance decomposition and impulse response functions (IRFs).

The empirical analysis suggest that the “demand channel” plays a large part in explaining commodity price growth whether BRIC countries are included or excluded from the analysis. However, excess liquidity may also play a part in explaining price growth. In addition, factoring in BRIC country data leads to the conclusion that unexpected movements in liquidity eventually explain more of the variation in commodity prices than unexpected demand shocks. This specific result is not caught in the sample that only incorporates advanced economies.

Despite the theory of Frankel (1986) and the findings of previous global vector autoregression (VAR)/VEC analyses, interest rates, especially shocks, have a minimal impact on consumer and commodity prices. Perhaps future studies should include an interest rate in their analysis that more closely reflects interest rates associated with information used by commodity consumers, producers, and investors. Some analyses such as Hua (1998) use the LIBOR rate, which is highly associated with developed financial markets in the advanced economies. Data quality and availability in the BRIC countries severely limited the length of the time period analyzed and the frequency of the data. Finding longer sample periods or higher frequency data can help to minimize bias in future research. In this paper, monetary aggregates and short-term interest rates were loosely connected to monetary policy. It would also be interesting to directly examine how special programs like quantitative easing influenced global liquidity.

The results of the IRFs and variance decompositions confirm some of the previous findings reported in Belke et al. (2010), Hua (1998), and Swaray (2008) that suggest that positive shocks to liquidity positively impact commodity prices. In particular, both samples suggest that this is a short-run impact that occurs after two quarters. However, in the sample that includes information about liquidity from BRIC countries, excess liquidity positively affects commodity prices after six and seven quarters as well. The insignificant results of Granger causality tests of the effect of monetary variables on commodity prices suggests that this relationship is limited to movements in liquidity that is unexpected by agents in the system. These “shocks” could be attributed to a number of factors including exogenous monetary policy changes such as the unprecedented responses by the Federal Reserve during and after the 2008 global financial crisis.

First, empirical research that claims to analyze relationships at a “global” level needs to account for the growing influence of emerging economies and not simply the advanced economies. Otherwise, results may be biased as they were when too much of the forecast error variance in commodity prices was attributed to shocks to output when it should have been attributed to shocks to excess liquidity. Second, those who criticize expansionary monetary policy in the advanced countries, especially by the Federal Reserve, for pushing up commodity prices should also direct their attention toward monetary authorities elsewhere, especially the BRIC countries, since information on excess liquidity from these countries adds to the influence that global excess liquidity has on commodity prices. Third, monetary policymakers in the advanced countries need to closely monitor liquidity in the BRIC countries, since the discrepancies between the ALL and ADV samples suggests that BRIC excess liquidity affects commodity prices in a way that cannot be captured by examining advanced country data alone.

No other paper in this area looked at the BRIC countries.

The credit ratings issued by the Big 3 ratings agencies are inaccurate and slow to respond to market changes. This paper aims to develop a rigorous, transparent and robust credit assessment and rating scheme for sovereigns.

This paper develops a regression-based model using credit default swap (CDS) data, and data on financial and macroeconomic variables to estimate sovereign CDS spreads. Using these spreads, the default probabilities of sovereigns can be estimated. The new ratings scheme is then used in conjunction with these default probabilities to assign credit ratings to sovereigns.

The developed model accurately estimates CDS spreads (based on RMSE values). Credit ratings issued retrospectively using the new scheme reflect reality better.

This paper reveals that both macroeconomic and financial factors affect both systemic and idiosyncratic risks for sovereigns.

The developed credit assessment and ratings scheme can be used to evaluate the creditworthiness of sovereigns and subsequently assign robust credit ratings.

The transparency and rigor of the new scheme will result in better and trustworthy indications of a sovereign’s financial health. Investors and monetary authorities can make better informed decisions. The episodes that occurred during the debt crisis could be avoided.

This paper uses both financial and macroeconomic data to estimate CDS spreads and demonstrates that both financial and macroeconomic factors affect sovereign systemic and idiosyncratic risk. The proposed credit assessment and ratings schemes could supplement or potentially replace the credit ratings issued by the Big 3 ratings agencies.