Search results
1 – 10 of 157Alper Kirik, Tunc Oygur and Yaman Omer Erzurumlu
This study aims to attempt to understand the joint co-movement of bank deposit rate and its main underlying determinants (foreign exchange rate (FX) rate, cross-currency swap rate…
Abstract
Purpose
This study aims to attempt to understand the joint co-movement of bank deposit rate and its main underlying determinants (foreign exchange rate (FX) rate, cross-currency swap rate and implied forward rate). The authors also compare time and frequency variant approaches in this dynamic.
Design/methodology/approach
The authors examine bank deposit rates where multiple variables jointly interact, and the integration is time and frequency variant. The study applies both cointegration and wavelet coherence methods and conducts a comparative analysis. It investigates eight markets over 2005–2020 aiming to capture the impact of changing market conditions and degree of development.
Findings
The results are in line with cross-country interdependence, where we observe more robust evidence for co-movement during adverse economic conditions with higher correlation compared to other periods such as the 2007–2009 US mortgage crises, 2010–2012 Euro crises and 2019 pandemic. Moreover, wavelet analysis suggests deposit rate lags FX rate and leads cross-country swap rate. The USA arguably leads the co-movement accompanied briefly by Japan and followed closely by other developed markets and later the developing markets. Heat maps suggest clustering of countries.
Practical implications
The wavelet coherence's ability to indicate the periods and the frequencies of the relationship is essential to capture the true nature of the relationship. Such additional insight would enable the practitioners to determine the true price of the deposit rate.
Originality/value
The study captures the long suggested collective nature of three main underlying determinants of bank deposit. The results shed light on the order of dynamics in a complex bank deposit environment. Comparative analysis further highlights the valuable insight quadruple wavelet coherence provides.
Details
Keywords
Zubeyir Kilinc, Hatice Gokce Karasoy and Eray Yucel
The composition of bank liabilities has captured a lot of attention especially after the global financial crisis of 2008–2009. It is argued that a compositional change in non-core…
Abstract
The composition of bank liabilities has captured a lot of attention especially after the global financial crisis of 2008–2009. It is argued that a compositional change in non-core liabilities reflects the different stages of financial cycle. Banks usually fund their credits with core liabilities, which grow with households’ wealth, but when there is a faster growth in credits compared to deposits, the banks often resort to non-core liabilities to meet the excess demand for loans. This chapter analyses the relationship between non-core liabilities and credits in a small open economy, namely Turkey. It investigates the relationship under alternative settings and presents consistent evidence on a robust relationship between credits and non-core liabilities under all frameworks. The study also verifies that elevated demand for credit may induce some increase in non-core liabilities. Finally, the relationship between non-core liabilities and credit growth is also affirmed in the long run.
Details
Keywords
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.
Details
Keywords
This paper aims to discuss the money creation mechanisms in emerging markets with special focus on external transactions and outlines the implications for monetary policy and…
Abstract
Purpose
This paper aims to discuss the money creation mechanisms in emerging markets with special focus on external transactions and outlines the implications for monetary policy and financial stability issues.
Design/methodology/approach
To make the argument, the authors analyze a historical episode of flows of funds in Korea and Russia and conduct a canonical correlation analysis for a cross-section of emerging market economies.
Findings
The authors show that changes in the net foreign assets of the banking system are associated with (or cause) deposits fluctuations. In emerging markets, however, the scope of such fluctuations is limited unless driven by changes in the foreign reserves of a central bank.
Originality/value
Some preliminary implications for financial stability implementation may be drawn from this analysis. Introducing the net stable funding ratio requirement is unlikely to have any significant destabilizing effect on credit creation in emerging markets (in this regard, it is similar to the restriction on banks’ foreign currency position, which is a common prudential measure). Instead, it is likely to trigger a balance of payment adjustment that is similar to that experienced by an economy during its transition from fixed to flexible exchange rate regime.
Details
Keywords
Ahmed Mohamed Dahir, Fauziah Binti Mahat and Noor Azman Bin Ali
The purpose of this paper is to examine the effects of funding liquidity risk and liquidity risk on the bank risk-taking.
Abstract
Purpose
The purpose of this paper is to examine the effects of funding liquidity risk and liquidity risk on the bank risk-taking.
Design/methodology/approach
This study employs a system generalized method of moments (GMM) estimation technique and a sample of 57 banks operating in BRICS countries over the period from 2006 to 2015.
Findings
The results reveal that liquidity risk has a significant and negative effect on the bank risk-taking, indicating that a decrease in liquidity risk contributes to higher bank risk-taking. The study also reveals that funding liquidity risk has the substantial impact on bank risk-taking, suggesting lower funding liquidity risk results in higher bank risk-taking. These results are consistent with prior assumptions.
Research limitations/implications
The implications of this study highlight the fact that liquidity risk is a risk factor which drives the potential bank default, of which banks tend to take more risks when higher funding liquidity exists.
Practical implications
This study offers a number of valuable implications for the policy makers as well as practitioners. The policy makers should take into account better liquidity risk management framework aimed at preventing banks from taking excessive risks. Bank executives must pay more attention on how banks could hold more liquid securities and cash. Less risk-taking reduces higher borrowing costs undermining earnings through imposing taxes on corporate.
Originality/value
This work uncovered that liquidity risk per se is an important and previously unidentified risk factor, specifically its effects on bank risk-taking and contributes to the view in support of holding more liquid securities than the past.
Details
Keywords
Mohammad Ashraful Ferdous Chowdhury and Mohamed Eskandar Shah Mohd Rasid
The main objective of this study is to identify the main determinants of the Islamic banks’ performance in Gulf Cooperation Council (GCC) regions.
Abstract
Purpose
The main objective of this study is to identify the main determinants of the Islamic banks’ performance in Gulf Cooperation Council (GCC) regions.
Methodology/approach
The research uses both static model (fixed effects and random effects) and Generalized method of Moments (GMM). The data for this study are obtained from the annual reports of 29 Islamic banks from GCC countries using Bankscope database for the period from 2005 to 2013.
Findings
The empirical findings reveal that Islamic banks’ specific factors such as the equity financing and bank size are positive and statistically significant to the profitability of Islamic banks. The operating efficiency ratio is negatively and statistically significant to return on asset. It is also found that macroeconomic variables such as money supply and inflation are negatively and statistically significant to the performance of Islamic banks whereas oil price has been found positive and statistically significant to the performance of Islamic banks in the GCC region.
Research implications
The present study seeks to fill a demanding gap in the literature by providing new empirical evidence on the factors that influence the profitability of the Islamic banking sector in GCC regions.
Originality/value
These findings have significant contribution to the literature by comprehensively clarifying and critically analyzing the current state of profitability among the Islamic banks in GCC regions.
Details
Keywords
Introduction: The Great Financial Crisis of 2008 highlighted the importance of financial cycle fluctuations. While the regulatory response was to mandate higher bank capital…
Abstract
Introduction: The Great Financial Crisis of 2008 highlighted the importance of financial cycle fluctuations. While the regulatory response was to mandate higher bank capital requirements during the financial cycle upswing, academic research focussed on identifying the best performing early warning indicators to forecast financial cycle fluctuations that have proven to be often unrelated to business cycle changes. To safeguard the global financial system against the financial cycle fluctuations, Basel Committee of Banking Supervisors, based on first strands of empirical evidence, proposed the credit-to-GDP gap as the headline indicator tied to the countercyclical capital buffer. However, later research on this indicator identified certain concerns, among them subpar performance for economies with short available data series.
Aim of the Study: To this end this study aims to analyse various financial cycle indicators from a unique perspective of their potential viability under limited historical data availability.
Methods: For this purpose, a meta-study of existing research is carried out as well as an empirical study to compare performance of certain indicators for the sample of six countries in the Central, Eastern and South-Eastern European region, where long data series are not available.
Main Findings: It was found that certain approaches, among them calculation of raw credit growth rate and application of Hamilton filter, can supplement or possibly even outperform the Basel credit-to-GDP gap indicator under limited data availability.
Conclusion: Author concludes that for limited time series Basel credit-to-GDP gap can be potentially outperformed by other indicators and further research in this currently under-studied field is warranted.
Originality of the Paper: By using various financial cycle indicators that already proven their early warning prediction powers from previous research, this study focusses on their potential viability under limited historical data availability. Respective findings might be appreciated for supplementing policy-makers’ toolkits as complementary indicators in cases where there is no available long time series for financial cycle estimation, for example, such as countries that entered market economies relatively late.
Details
Keywords
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.
Details
Keywords