Archive for the ‘Academic research & research papers’ Category

Bernanke, Geithner, Paulson to lead new project explaining decisions of financial crisis…

November 17, 2017

One does not know how to react to such research projects. When the chief actors during the 2008 crisis get to figure what was behind their very decisions:

Ten years after the onset of the worst financial crisis in generations, the first-person “we were there” accounts by the those who led the rescue have been published, journalistic accounts have been written—and even turned into made-for-TV movies—and the Financial Crisis Inquiry Commission has disbanded after publishing its report on the causes of the crisis.

But in one important respect the record is incomplete: There is no coherent and detailed explanation of the dozens of design decisions the first responders made as they crafted the many rescue and stabilization programs. Why, for instance, did the Federal Reserve conduct auctions for its Term Auction Facility on Mondays, but provide winning banks the cash on Thursdays instead of immediately? (So no one would conclude that a bank that borrowed this way was so desperate that it needed the cash to open the next morning.) More generally, what options were rejected and why? In hindsight, what worked as anticipated and what did not? Besides completing the historical record, answers to such questions may clear up some lingering controversies and may prove useful the next time the U.S. or any other country confronts a severe financial crisis.

To fill that gap, the Hutchins Center on Fiscal and Monetary Policy at Brookings has teamed up with the Yale Program on Financial Stability to commission papers from those who crafted the rescues in the Bush and Obama administrations and the Federal Reserve.

The project will be led by former Treasury secretaries Tim Geithner and Hank Paulson and former Fed Chair Ben Bernanke, and will culminate in the presenting of research at a Brookings conference close to the tenth anniversary of the crisis on September 11 and 12, 2018. The conference will end with reflections by Messrs. Bernanke, Geithner and Paulson. My colleague, J. Nellie Liang, Miriam K. Carliner Senior Fellow in Economic Studies at Brookings and former director of the Fed’s Division of Financial Stability, will serve as editor for the papers.

Scholars will be studying and writing about the causes and consequences of the global financial crisis and the Great Recession for decades to come.  We hope the unique nature of this project—the first-hand accounts by those who were in the trenches—will inform that work.

Looking forward to this…

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Digitial push is leading banks to turn away senior citizens and differently-abled persons? Also missed lessons from Syndicate Bank…

November 10, 2017

In October 2017, RBI in its Statement on development and regulatory policy noted (released along with monetary policy):

8. Banking Facility for Senior Citizens and Differently abled Persons

It has been reported that banks are discouraging or turning away senior citizens and differently abled persons from availing banking facilities in branches. Notwithstanding the need to push digital transactions and use of ATMs, it is imperative to be sensitive to the requirements of senior citizens and differently abled persons. It has been decided to instruct banks to put in place explicit mechanisms for meeting the needs of such persons so that they do not feel marginalised. Ombudsmen will also be advised to pay heed to complaints in this context. Necessary instructions in this regard will be issued by end-October 2017.

So, in this digital madness suiting the young and efficient, banks are making these choices. Amazing how every person in this country is seen as dishonest till he is totally digitalised.

Having said this, one is really surprised to see some banks actually doing this. But trust humanity to do anything these days. I mean one still can’t figure why should a regulator have to step in for such basic things. Have Indian banks totally lost it?

Anyways, based on above RBI released a notice asking banks to take steps to reach out to senior citizens and differently abled people. It includes measures like accepting forms physically, cheque book facility, dedicated counters for senior citizens and soon. The last step is:

(g) Door Step Banking

We have issued instructions on Doorstep Banking vide circular DBOD.No.BL.BC.59/22.01.010/2006-2007 dated February 21, 2007 under Section 23 of Banking Regulation Act, 1949. However, in view of the difficulties faced by senior citizens of more than 70 years of age and differently abled or infirm persons (having medically certified chronic illness or disability) including those who are visually impaired, banks are advised to make concerted effort to provide basic banking facilities, such as pick up of cash and instruments against receipt, delivery of cash against withdrawal from account, delivery of demand drafts, submission of Know Your Customer (KYC) documents and Life certificate at the premises/ residence of such customers.

Amazing again. How little we learn from lessons of past practices in banking! This is perhaps unique to India where despite a rich financial and banking history, we just pay no heed to the lessons. Syndicate Bank had in late 1920s showed the utility of door to door banking but it seems nothing was learnt. The scheme was mainly for mobilizing pigmy desposits but showed how banks could connect with customers in a big way.

Infact door to door banking goes a long way here but earlier it was manly to give credit and collect the proceeds. These were all called as loan sharks and quite a few Hindi and regional movies show them. But Syndicate Bank turned it towards deposits which was seen as really positive as it “nudged” people towards savings and then borrowing against the same.

Infact, I learnt from series of circulars mentioned in the 2017 circular that RBI restricted door step banking in 1983. So, instead of taking positives from the scheme one just limited it. Then in 2005, RBI lifted some restrictions for government departments and the further guidelines were issued to streamline the process in 2007.

All in all, as we keep digitally pushing people and glorify tech leaders who are just destroying jobs, there is realization that age old practices still have relevance. Earlier door step banking was used for one and all and now RBI is suggesting banks to use it to serve the old and differently-abled people..

The 10 Greatest Hollywood Films for Teaching Economics

November 6, 2017

Interesting paper by G. Dirk MateerBrian O’Roark and Kim Holder which is freely available for download as of now.

We asked economic educators from around the country to identify five films that they found most useful in teaching economics. Our sample of 105 educators reflects wide-ranging opinions about the greatest films for teaching economics. We provide summaries of each of the Top 10 films in our list and short descriptions of the next 10. The films surveyed are an eclectic mix that spans different eras and genres. It is our hope that this list will spur conversations about economics among interested readers and economic educators. 

Some interesting movies featured in the paper like It is a Beautiful Life, Castaway and of course Wall Street.

Those more interested in the Bollywood movies, can follow the exciting Housefull Economics series!

Changing business models in international bank funding..

November 6, 2017

Leonardo Gambacorta, Stefano Schiaffi and Adrian Van Rixtel analyse the changes in this paper:

This paper investigates the foreign funding mix of globally active banks. Using BIS international banking statistics for a panel of 12 advanced economies, we detect a structural break in international bank funding at the onset of the great financial crisis. In their post-break business model, banks rely less on cross-border liabilities and, instead, tap funds from outside their jurisdictions by making more active use of their subsidiaries and branches, as well as inter-office accounts within the same banking group.

There is a difference between international banks and MNC banks:

Business models in global banking are generally distinguished between multinational and international banking (McCauley et al., 2010; Gambacorta and Van Rixtel, 2013).2 Multinational banks maintain sizeable foreign branches and subsidiaries in multiple jurisdictions, matching largely local assets and liabilities. In contrast, international banks conduct cross-border business predominantly from the country where they are headquartered or from international financial centres.

Then there is difference between centralised and decentralised models of funding. One can say international banks mostly use centralised models and MNC banks use decentralised models but there could be exceptions as well.

There are some other interesting details as well in the paper barring empirics alone…

Internal capital markets in times of crisis: the benefit of group affiliation in Italy

October 27, 2017

First research says raising capital frm internal sources like parent firms. group firms etc is bad and  firms should raise capital only from external sources. Then comes a crisis and it says internal capital markets are fine.

Raffaele Santioni, Fabio Schiantarelli and Philip E. Strahan look at Italian case:

Italy’s economic and banking systems have been under stress in the wake of the global financial crisis and the euro crisis. Our results suggest that firms in business groups have been more likely to survive in this challenging environment than unaffiliated firms. Better performance stems from access to an internal capital market, and the survival value of groups increases, inter alia, with group-wide cash flow.

We show that actual internal capital transfers increase during the crisis, and these transfers move funds from cash-rich to cash-poor firms and also to those with more favourable investment opportunities. The ability to borrow externally provides the internal capital market with additional funds, but sharing external capital becomes less important during a crisis. Our overall results highlight the benefits of internal capital markets when external capital markets are tight or distressed.

 

Central banks: Evolution and innovation in historical perspective

October 25, 2017

Michael Bordo and Pierre Siklos have a shorter piece based on their longer research paper

I was particularly interested in the results reported of Canada. There is this research which suggests how Canada had a stable financial system even before it had a central bank unlike other countries like US. Canada is also seen as a good example of free banking by its proponents.
What is interesting is how Canada without a central bank does well in things like inflation etc.:

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Eastern branch of Libyan Central Bank launches its own coins made in Russia

October 23, 2017

Libya has been under deep turmoil since Gaddafi exit and civil war. There are several divisions in the country and confusions for an outsider.

However, this bit of news is interesting. Eventually, it all boils down to control of monetary system for the governments/authorities:

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Neymar Case: The value of top footballers, bubbles, and pitfalls of the free market

October 13, 2017

Eran Yashiv of Tel Aviv Univ has a piece:

The €222 million transfer of Neymar to PSG calls into question whether football superstars are a good investment. Using the financial details of the transfer, this column argues that, at the price paid, Neymar has a negative net present value. While there are other explanations for PSG’s willingness to pay, in purely economic terms his contract seems a bad investment. Policymakers might use this type of calculation to justify intervening in the transfer market through regulation and taxation.

 Hmm..

Making it Easier to Apply for a Bank Account: A Study of the Indian Market

October 12, 2017

World Bank researchers in this research:

This paper draws on new individual-level survey data from India to study the costs of opening an account and the efficiency of the account application process. The data show a recent increase in account ownership, especially by women and poor adults. The data also suggest that India’s flagship financial inclusion program, the Jan Dhan Yojana scheme, has made it easier to get an account, through lower costs and greater ease of applying. Yet despite the scheme’s initial successes, people who wish to apply for an account continue to incur a range of costs. The survey results suggest several recommendations that could improve the account application process and increase ownership and usage of accounts.

Figuring the transaction costs of opening and using bank accounts is key to inclusion. How is it that with so many years of inclusion push, we have not figured this?

Do central bank speeches effect macroeconomic forecasts?

October 10, 2017

Interesting paper by SNB economists – Thomas Lustenberger and Enzo Ross.

The general belief is that more communications and transparency is good and more should be encouraged.  However, the authors of the paper don’t think so:

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Merchants and the Origins of Capitalism

October 6, 2017

Fascinating paper by Sophus A. Reinert and Robert Fredona. They point how the history of capitalism is defined by a sedentary merchants who managed businesses from their homes:

N.S.B. Gras, the father of Business History in the United States, argued that the era of mercantile capitalism was defined by the figure of the “sedentary merchant,” who managed his business from home, using correspondence and intermediaries, in contrast to the earlier “traveling merchant,” who accompanied his own goods to trade fairs. Taking this concept as its point of departure, this essay focuses on the predominantly Italian merchants who controlled the long‐distance East‐West trade of the Mediterranean during the Middle Ages and Renaissance.  

Until the opening of the Atlantic trade, the Mediterranean was Europe’s most important commercial zone and its trade enriched European civilization and its merchants developed the most important premodern mercantile innovations, from maritime insurance contracts and partnership agreements to the bill of exchange and double‐entry bookkeeping.

Emerging from literate and numerate cultures, these merchants left behind an abundance of records that allows us to understand how their companies, especially the largest of them, were organized and managed. These techniques can also be put in the context of premodern attitudes toward commerce and the era’s commercial‐political relations. The Commercial Revolution anticipated the Industrial Revolution by over half a millennium and laid the groundwork for today’s world of global business.  

Hmm…

How the CEO’s cultural heritage affects bank performance under competition…

October 4, 2017

Louis Nguyen, Jens Hagendorff and Arman Eshraghi have this interesting piece:

Islam and Economic Performance: Historical and Contemporary Links

October 3, 2017

Timur Kuran of Duke Univ has a research paper  (HT: MR blog):

This essay critically evaluates the analytic literature concerned with causal connections between Islam and economic performance. It focuses on works since 1997, when this literature was last surveyed. Among the findings are the following: Ramadan fasting by pregnant women harms prenatal development; Islamic charities mainly benefit the middle class; Islam affects educational outcomes less through Islamic schooling than through structural factors that handicap learning as a whole; Islamic finance hardly affects Muslim financial behavior; and low generalized trust depresses Muslim trade. The last feature reflects the Muslim world’s delay in transitioning from personal to impersonal exchange. The delay resulted from the persistent simplicity of the private enterprises formed under Islamic law.

Weak property rights reinforced the private sector’s stagnation by driving capital out of commerce and into rigid waqfs. Waqfs limited economic development through their inflexibility and democratization by restraining the development of civil society. Parts of the Muslim world conquered by Arab armies are especially undemocratic, which suggests that early Islamic institutions, including slave-based armies, were particularly critical to the persistence of authoritarian patterns of governance. States have contributed themselves to the persistence of authoritarianism by treating Islam as an instrument of governance. As the world started to industrialize, non-Muslim subjects of Muslim-governed states pulled ahead of their Muslim neighbors by exercising the choice of law they enjoyed under Islamic law in favor of a Western legal system.

Hmm.. A very long paper (95 pages)..

Primer on Islamic Banking

September 19, 2017

Superb primer by Arshadur Rahman of Bank of England. It explains the basics of Islamic Banking and does a great job.

Also interesting to know BoE planning to introduce a Shari’ah compliant facility. This will faciliate UK Islamic banks hold central bank assets:

  • ​Islamic banking is a relatively young but growing sector of the broader financial services industry. Numerous banks around the world offer Islamic, or Shari’ah compliant, financial products.
  • Some central banks offer Shari’ah compliant liquidity facilities to Islamic banks, affording them similar flexibility to other firms in managing their liquidity. Such facilities avoid the payment or receipt of interest, which is otherwise the most common basis for operating a liquidity facility.
  • The Bank is establishing a Shari’ah compliant facility, specifically a deposit facility to allow UK Islamic banks to hold central bank assets as part of their liquid assets buffer. This article explores the various ways in which this can be done, along with the model the Bank has chosen to adopt.

How religions have shaped all these banking and financing cultures and institutions..

Methods for pricing options in the 19th century..

September 14, 2017

Prof George Dotsis of University of Athens has a piece on how options were priced in 19th century.He builds his research from a book by an option trader: Higgins, L (1906), The put-and-call, Aberdeen: Aberdeen University Press.

As expected, traders back then had figured a way to price options without much jazz as today:

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The origins of financial development: How the African slave trade continues to influence modern finance..

September 12, 2017

Interesting paper by  Ross Levine (who else), Chen Lin and Wensi Xie”

In this paper, we contribute to research on two interrelated questions: What are the historical determinants of national differences in financial development and through which mechanisms do these historical factors influence the operation of modern financial systems?

We focus on the historical African slave trade during the period from 1400 – 1900, which Nunn and Wantchekon (2011) show has had an enduring effect on social cohesion and culture across Africa. More specifically, we examine the impact of the intensity with which people were captured, enslaved, and exported from Africa on financial development today and key institutions that shape modern financial systems. With respect to the first question, Pierce and Snyder (2017a) show that the slave trade is negatively associated with firm access to credit. We contribute by showing the intensity of the slave trade across African countries is also negatively associated with household access to credit and overall financial development. We further show that the negative association between slave exports and firm access to credit varies in a theoretically predictable manner, as the association is especially pronounced among firms that depend heavily on external finance for technological reasons.

With respect to the second question, we evaluate three potential mechanisms linking the historical slave trade to modern finance. A large body of evidence indicates that information sharing institutions that reduce information asymmetries about potential borrowers, the degree of trust that individuals have in financial institutions, and the quality of legal institutions influence the operation of modern financial systems. We discover that the intensity of the African slave trade in the 1400 – 1900 period is strongly, negatively related to the quality of information sharing institutions and trust in financial institutions but is not strongly related to legal institutions. These findings are consistent with the view that two mechanisms through which the historical slave trade continues to influence modern financial systems across Africa are information sharing institutions and trust.

Need to read it carefully..

Why don’t we look at lessons from Indian banking history while resolving current NPA crisis..

September 8, 2017

It was interesting to read RBI DG’s speech on Indian banking NPA crisis. He starts pointing to the scale of the problem and then looks at examples of banking crisis in Japan (1990s)  and Europe (recently).

In the end, he asks several qs in words of William Wordsworth:

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Women leading banks: A case for more or less stability?

September 8, 2017

They say if Lehman Brothers was Lehman Sisters, things would have been more stable not just at the firm but even for markets.

However, economists will always say but where is the evidence?

A group of IMF economists look at data and show that banks led by women are more stable:

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Monopoly without a Monopolist: An Economic Analysis of the Bitcoin Payment System

September 7, 2017

This is the title of a Bank of Finland working paper by Gur Huberman, Jacob D. Leshno and Ciamac Moallemi.

Though fairly technical, the paper has some interesting observations:

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Indian income inequality 1922-2014: From British Raj to Billionaire Raj…

September 6, 2017

Lucas Chancel and Thomas Piketty analyse the trends in this paper (HT:CafeEconomics).

Not surprisingly, the share of national income held by 1% is the highest since 1922:

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