Archive for May 27th, 2020

COVID-19 and non-performing loans: lessons from past crises

May 27, 2020

Anil Ari, Sophia Chen, and Lev Ratnovski of ECB in this research look at NPL story.

During crises, the number of loans that cannot be paid back increases. What are the lessons from past crises for non-performing loan resolution after COVID-19? In this article we use a new database covering non-performing loans (NPLs) in 88 banking crises since 1990 to find out. The data show that dealing with NPLs is critical to economic recovery.

Compared with the 2008 crisis, some factors are conducive to NPL resolution this time: banks have higher capital, the forward-looking IFRS 9 accounting standards can help NPL recognition, and the COVID-19 crisis was not preceded by a credit boom. However, other factors could make NPL resolution more challenging: government debt is substantially higher, banks are less profitable, and corporate balance sheets are often weak.


Interview of Joshua Angrist: On charter schools, the elite illusion, and the “Stones Age” of econometrics

May 27, 2020

Nice interview of Prof Joshua Angrist of MIT:

As a teenager growing up in Pittsburgh, Joshua Angrist became fed up with high school and said his goodbyes to it after his junior year. Today, at the Massachusetts Institute of Technology, he’s a top researcher in labor economics and the economics of education — with work that includes a series of famed studies of policy choices for K-12 schooling.

Much of his work has been based on ingenious “natural experiments,” that is, episodes in which two or more groups of people were randomly exposed to different policies or different experiences. Such occurrences are an opportunity for Angrist and his co-authors to use the tools of econometrics to assess the effects of those differences — whether that’s a large classroom versus a small classroom or education at a charter school versus education at a conventional public school.

Angrist’s first natural experiment looked at labor market outcomes for men who were drafted during the Vietnam War era compared with those of men who weren’t drafted. The idea came to him from his labor economics teacher and Ph.D. adviser at Princeton, Orley Ashenfelter, who mentioned in class one day that he had seen a news article about a study in the New England Journal of Medicine in which epidemiologists investigated the long-term health effects of being drafted.

“They had done this very clever thing where they used the fact that draft lottery numbers were randomly assigned,” Angrist remembers, “and they compared people who had high and low numbers to test the causal effects.”

Ashenfelter remarked to the class that this use of the draft lottery was a great idea and that somebody should use it to look at the effects of the draft on the men’s earnings. Angrist agreed; immediately after class, he went to the library to start the research that became his doctoral thesis.

Angrist found that in the early 1980s, well after the end of the war, veterans — whether they served in Vietnam or elsewhere — took an earnings hit of around 15 percent compared with non-veterans in the same period. (Angrist himself served as a paratrooper in the Israeli army before he went to grad school.)

In addition to his research and teaching responsibilities at MIT, Angrist is a co-founder and co-director of MIT’s School Effectiveness and Inequality Initiative. He is the author, with Jörn-Steffen Pischke, of the econometrics textbooks Mostly Harmless Econometrics: An Empiricist’s Companion (2009) and, for undergraduates, Mastering ‘Metrics: The Path from Cause to Effect (2015). He also teaches econometrics in a series of free videos offered through the nonprofit Marginal Revolution University.

How he came into economics? It is all about getting one good teacher!


Cash Management Bills (CMB) worth Rs 80000 cr announced…

May 27, 2020

RBI announced auction of CMBs worth Rs 80,000 cr to be held on 28-May-2020.

The issuance of CMB is done when WMA limits are breached.

This blog has been tracking WMA regularly and the position does not look good. It has become a continuous source of financing. It was a matter of time when the government will breach WMA limits and CMBs to be issued. We will have to wait for WSS data to ascertain whether WMA limits were breached in this weekly period.

WSS release Date Date of WMA WMA Amount WMA Limit Difference WMA Breach CMB
10-Jan-20 03-Jan-20 130171 35000 -95171 Y worth Rs 60000 cr (30k+30 k)
17-Jan-20 10-Jan-20 60605 35000 -25605 Y
24-Jan-20 17-Jan-20 87735 35000 -52735 Y
31-Jan-20 24-Jan-20 24184 35000 10816 N
07-Feb-20 31-Jan-20 73545 35000 -38545 Y worth Rs 60000 cr (30k+30 k)
14-Feb-20 07-Feb-20 23324 35000 11676 N
21-Feb-20 14-Feb-20 6817 35000 28183 N
28-Feb-20 21-Feb-20 0 35000 35000 N
06-Mar-20 28-Feb-20 5081 35000 29919 N
13-Mar-20 06-Mar-20 32976 35000 2024 N
20-Mar-20 13-Mar-20 20553 35000 14447 N
27-Mar-20 20-Mar-20 0 35000 35000 N
03-Apr-20 27-Mar-20 50477 35000 -15477 Y worth Rs 80000 cr (40k+40 k)
10-Apr-20 03-Apr-20 40008 120000 79992 N
17-Apr-20 10-Apr-20 110942 120000 9058 N
24-Apr-20 17-Apr-20 135451 120000 -15451 Y No CMB, perhaps was resolved quickly
01-May-20 24-Apr-20 111985 200000 88015 N
08-May-20 01-May-20 165833 200000 34167 N
15-May-20 08-May-20 134970 200000 65030 N
22-May-20 15-May-20 128836 200000 71164 N
29-May-20 22-May-20 CMB worth Rs 80000 announced on 26 May and to be auctioned on 28 May
05-Jun-20 29-May-20







History of Repo markets in US..

May 27, 2020

I wrote a piece in BQ looking at evolution of Repo markets in India.

John Mullin writes on repo markets in US.

What led to rise of Repo market? In 1970s as inflation rose deposit rates could not rise due to regulatory caps. This is much like India where interbank repo markets developed as call rates were capped.


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