•A Markov model that tracks and forecasts the potential contagion of bank runs.•Input variables include initial and proportions of cash withdrawals, initial failure rates, and a contagion market ...factor of bank runs.•Three illustrations of the model along hypothetical banking systems.•Several numerical examples and sensitivity analyses are provided.
In this study, we develop a generic Markov model that tracks in real-time and forecasts the potential contagion of bank runs during severe contractionary economic cycles. The proposed model aims to assist regulatory bodies that supervise heterogeneous banking systems by offering an adaptable monitoring scheme. The model calibrates a few input variables including initial cash withdrawals, bank idiosyncratic initial failure rates, allocated proportions of cash withdrawals, and a contagion market factor of bank runs, and it concludes with designated measures for the overall strength of a banking system and for the expected time until a banking system failure, as predefined by policymakers. We also illustrate the functionality of the model along three hypothetical banking systems and further deploy numerical examples and sensitivity analyses, which reveal that initial bank failure rates play a bigger role in the propagation of bank runs than the contagion market factor.
The development of globalization creates a need for diagnosis of financial stability at the global level. This study aims to analyze the financial stability of the global banking system and identify ...threats to stability at the level of geographic regions and countries. The study uses the methods of a structured system, comparative and cluster analysis. The empirical study is based on World Bank data for 126 countries for the period 1998–2017. One of the key results of the study is the development of quantitative indicators of the financial stability of the world banking system. These indicators differ from the existing ones due to the predictive nature of the former. The study also proposes criteria of qualitative assessment of the level of financial stability of the world banking system and its individual elements in the form of regional and national banking systems. In addition, appropriate algorithms were developed to calculate the proposed indicators and criteria. The results helped to form clusters of countries in terms of the level of their banking system stability, compile maps of financial stability risks at the global level, and identify countries that are sources of potential threats to financial stability. The empirical part of the study confirms the practical applicability of the proposed analytical tools. The study shows that in 2017, the banking system of Asian countries moved to the high-risk zone. Potential threats to the financial stability of the global banking system come from the European and Asian banking systems, as well as from the Australian banking system. AcknowledgmentThe study was funded by the RFBR according to the research project No 18 010 00232 “A methodology of multilevel system of diagnostics and regulation of financial stability” year 2018–2020.
This study examines the interconnection structure of Islamic and conventional banks and how they transmit extreme risks to each other. This appears to be a particular problem because of the ...heterogeneous structure of dual banking systems, which raises major questions about systemic stability. We define extreme risk by the transmission of tail risk across banks for a panel of 20 Islamic and 34 conventional banks in six GCC member countries with dual banking systems over the period 2007–2021. Our results reveal the existence of tight connectivity, which increases significantly during periods of instability. We also provide an analysis of the topological structure of the interconnectedness of Islamic and conventional banks that suggests significant unidirectional and bidirectional spillovers of extreme risk at the inter- and intra-sectoral and bilateral country levels. Finally, by examining the individual systemic relevance, we find that there is an asymmetric effect of extreme risk spillovers between conventional and Islamic banks.
•We study how extreme risks propagate between Islamic and conventional banks in GCC countries.•Extreme risk spillovers are measured by the simultaneous transmission of extreme risk across banks.•Extreme risk spillovers are persistent during the financial crisis and the COVID-19 crisis.•Islamic and conventional banks transmit extreme risks at the national, inter- and intra-sectoral levels.•Asymmetric contribution to extreme risk spillovers is found between Islamic and conventional banks.
This volume assembles and presents a database on bank regulation in over 150 countries (included also on CD). It offered the first comprehensive cross-country assessment of the impact of bank ...regulation on the operation of banks, and assesses the validity of the Basel Committee's influential approach to bank regulation. The treatment also provides an empirical evaluation of the historic debate about the proper role of government in the economy by studying bank regulation and analyzes the role of politics in determining regulatory approaches to banking. The data also indicate that restrictions on the entry of banks, government ownership of banks, and restrictions on bank activities hurt banking system performance. The authors find that domestic political factors shape both regulations and their effectiveness.
Abstract
A decentralized banking system is marked by geographical dispersion of banks with close proximity of banks to their borrowers and strong long-term relationships between banks and their ...borrowers based on soft, tacit, as well as hard, codified information. It is important for promoting the development of small and medium-sized enterprises (SMEs) particularly in regional locations. In contrast, the UK has a highly centralized, concentrated banking system with weak relationships between banks and their borrowers. This has contributed to the high degree of regional disparity across the UK. The programme of ‘levelling up’ regions will require a more decentralized banking system. The cases of Germany, the US, and the Swedish bank Handelsbanken illustrate the advantages of decentralized banking. They also have important lessons for the way in which decentralized banking systems should be structured and organized and, in particular, for the regulatory arrangements that are conducive to their satisfactory functioning and avoidance of pitfalls to which they can otherwise be prone.
Abstract This paper contributes to the understanding of subordinate financialisation in emerging and developing economies by setting out a novel core–periphery framework that elucidates the place of ...Latin America in the global architecture of finance. This framework builds on the centre–periphery financial model of uneven regional credit and economic growth, originally proposed by Victoria Chick and Sheila Dow in 1988. In the era of deregulated financial flows and market-based credit, the core–periphery relationship has become a three-level hierarchical system, in which Latin American nations occupy a subordinate place. The key drivers of this structural shift within these nations have been the liberalisation of cross-border financial flows and investment, the deregulation of banking and the adoption of private pension systems. These drivers’ adoption can be traced to both push and pull factors: specifically, recurrent financial crises requiring external intervention (especially by the International Monetary Fund (IMF)), and the possibility of engaging with the financial instruments and megabanks driving the globalisation of finance. Participating in this hierarchical system has required importing elements of the financial architecture that evolved in the 1980s in advanced economies and has also arguably deepened this region’s financial dependency and vulnerability.
The Basel III Accord was the centrepiece of the international regulatory response to the global financial crisis, setting new capital requirements for internationally active banks. This paper ...explains the divergent preferences on Basel III of national regulators in three countries that approximate what are frequently presented as distinct varieties of capitalism in Europe — Germany, the United Kingdom and France. It is argued that national regulators setting post crisis capital requirements had to reconcile three inter-related and potentially conflicting objectives: banking sector stability, the competitiveness of national banks and short to medium term economic growth. The different national preferences on Basel III reflected how different national regulators defined and pursued these objectives, which in turn reflected the structure of national banking systems — specifically, systemic patterns of bank capital and bank-industry ties.
This paper examines the relationships between competition, efficiency and stability in the banking systems of four East Asian countries (China, Hong Kong, Malaysia and Vietnam) over 2004–2014. The ...results support the traditional competition–fragility view and suggest that an increase in competition may result in a decrease in stability. Similarly, credit risk, bank size and market concentration may positively affect bank stability. By contrast, banks with higher liquidity risk and revenue diversification may become less stable. Empirical analysis suggests that banking sector stability was adversely affected by the global financial crisis. Listed banks may be less stable than their non-listed peers. The macroeconomic environment (measured in terms of inflation and GDP growth) also affects bank stability. Additionally, some important policy implications with respect to improving bank stability are recommended.
The German Government refused to accept the development of a European Deposit Insurance Scheme (EDIS) for Banking Union member states. Publicly, the German Government was preoccupied with the ...creation of a moral hazard that common funds would create for banks in those participating countries that had weak banking systems. This paper argues that to understand German moral hazard concerns it is necessary to look beyond the ideational - notably concerns stemming from German Ordo-liberalism - and focus on the existing national institutional arrangements that the German Government sought to protect. German moral hazard concerns stemmed from the fear that well-funded German deposit guarantee schemes (DGS) - especially those of small savings and cooperative banks - could be tapped to compensate for underfunded (and largely ex post funded) DGS in other member states. We thus demonstrate that the difficulties facing the construction of an EDIS owe to the weakness of the previously agreed harmonization of national DGS. This failure to harmonize schemes beyond a low minimal standard can be explained through an analysis focused on national systems. Different existing national DGS stem from the different configuration of national banking systems, the longstanding relationships among national banks and well-entrenched regulatory frameworks.
The article discusses the problems encountered by enterprises in the financial sector in the context of the COVID-19 pandemic. The paper gives examples of management actions of the largest banks in ...Italy, Brazil, South Korea, China, Portugal, Singapore, the USA, the Philippines and Russia. World Health Organization has advised the population to use contactless payments and reduce the turnover of banknotes to a minimum. The coronavirus has increased the desire of customers to use digital services, making it an urgent need. In fact, the pandemic has led to the fact that Bank customers, who are increasingly afraid to spend time in public places, should be able to conduct banking operations without physical interaction with Bank offices. By implementing fully digital remote customer service, banks must ensure that both routine and unique (one-time, specific) banking processes will be performed without loss or disruption. Under these circumstances, financial institutions will be required to disclose information about the impact of the coronavirus pandemic on their operations in financial statements based on the relevant disclosure standards (Generally Accepted Accounting Principles, GAAP and United States Securities and Exchange Commission, SEC). Disclosure of financial statements may include risk factors such as Fund depreciation, reduced liquidity, and other aspects.
The downward trend in interest rates as required by governments and national banking regulators may affect the profitability of banks. Along with a General decline in business activity, this will lead to a decrease in Bank profits. Analysts’ concerns have already resulted in a sharp drop in the share prices of many firms, which creates another problem because some deferred tax assets, such as net operating losses (NOL), are not fully accounted for in the Bank’s regulatory capital requirements. National governments impose industry-specific tax requirements on capital market enterprises, but the challenges they will face when filing and paying direct and indirect taxes are likely to be similar to those faced by other industries.
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