Intermediary Asset Pricing He, Zhiguo; Krishnamurthy, Arvind
The American economic review,
04/2013, Letnik:
103, Številka:
2
Journal Article
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We model the dynamics of risk premia during crises in asset markets where the marginal investor is a financial intermediary. Intermediaries face an equity capital constraint. Risk premia rise when ...the constraint binds, reflecting the capital scarcity. The calibrated model matches the nonlinearity of risk premia during crises and the speed of reversion in risk premia from a crisis back to precrisis levels. We evaluate the effect of three government policies: reducing intermediaries borrowing costs, injecting equity capital, and purchasing distressed assets. Injecting equity capital is particularly effective because it alleviates the equity capital constraint that drives the model's crisis.
On the Rise of FinTechs Berg, Tobias; Burg, Valentin; Gombović, Ana ...
The Review of financial studies,
07/2020, Letnik:
33, Številka:
7
Journal Article
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We analyze the information content of a digital footprint—that is, information that users leave online simply by accessing or registering on a Web site—for predicting consumer default. We show that ...even simple, easily accessible variables from a digital footprint match the information content of credit bureau scores. A digital footprint complements rather than substitutes for credit bureau information and affects access to credit and reduces default rates. We discuss the implications for financial intermediaries’ business models, access to credit for the unbanked, and the behavior of consumers, firms, and regulators in the digital sphere.
How do banks operate and where does the money supply come from? The financial crisis has heightened awareness that these questions have been unduly neglected by many researchers. During the past ...century, three different theories of banking were dominant at different times: (1) The currently prevalent financial intermediation theory of banking says that banks collect deposits and then lend these out, just like other non-bank financial intermediaries. (2) The older fractional reserve theory of banking says that each individual bank is a financial intermediary without the power to create money, but the banking system collectively is able to create money through the process of ‘multiple deposit expansion’ (the ‘money multiplier’). (3) The credit creation theory of banking, predominant a century ago, does not consider banks as financial intermediaries that gather deposits to lend out, but instead argues that each individual bank creates credit and money newly when granting a bank loan. The theories differ in their accounting treatment of bank lending as well as in their policy implications. Since according to the dominant financial intermediation theory banks are virtually identical with other non-bank financial intermediaries, they are not usually included in the economic models used in economics or by central bankers. Moreover, the theory of banks as intermediaries provides the rationale for capital adequacy-based bank regulation. Should this theory not be correct, currently prevailing economics modelling and policy-making would be without empirical foundation. Despite the importance of this question, so far only one empirical test of the three theories has been reported in learned journals. This paper presents a second empirical test, using an alternative methodology, which allows control for all other factors. The financial intermediation and the fractional reserve theories of banking are rejected by the evidence. This finding throws doubt on the rationale for regulating bank capital adequacy to avoid banking crises, as the case study of Credit Suisse during the crisis illustrates. The finding indicates that advice to encourage developing countries to borrow from abroad is misguided. The question is considered why the economics profession has failed over most of the past century to make any progress concerning knowledge of the monetary system, and why it instead moved ever further away from the truth as already recognised by the credit creation theory well over a century ago. The role of conflicts of interest and interested parties in shaping the current bank-free academic consensus is discussed. A number of avenues for needed further research are indicated.
•The three theories of how banks function and whether they create money are reviewed•A new empirical test of the three theories is presented•The test allows to control for all transactions, delivering clear-cut results.•The fractional reserve and financial intermediation theories of banking are rejected•Capital adequacy based bank regulation is ineffective, credit guidance preferable•This is shown with the case study of Barclays Bank creating its own capital•Questions are raised concerning the lack of progress in economics in the past century•Policy implications: borrowing from abroad is unnecessary for growth
We investigate the effect of poor performance on financial intermediary reputation by estimating the effect of large-scale bankruptcies among a lead arranger's borrowers on its subsequent syndication ...activity. Consistent with reputation damage, such lead arrangers retain larger fractions of the loans they syndicate, are less likely to syndicate loans, and are less likely to attract participant lenders. The consequences are more severe when borrower bankruptcies suggest inadequate screening or monitoring by the lead arranger. However, the effect of borrower bankruptcies on syndication activity is not present among dominant lead arrangers, and is weak in years in which many lead arrangers experience borrower bankruptcies.
I model the equilibrium risk sharing between countries with varying financial development The most financially developed country takes greater risks because its financial intermediaries deal with ...funding problems better. In good times, the more financially developed country consumes more and runs a trade deficit financed by the higher financial income that it earns as compensation for taking greater risk. During global crises, it suffers heavier losses. Its currency emerges as the reserve currency because it appreciates during crises, thus providing a good hedge. I provide evidence that financial net worth plays a crucial role in understanding this asymmetric risk sharing.
Much effort goes into building markets as a tool for economic and social development; those pursuing or promoting market building, however, often overlook that in too many places social exclusion and ...poverty prevent many, especially women, from participating in and accessing markets. Building on data from rural Bangladesh and analyzing the work of a prominent intermediary organization, we uncover institutional voids as the source of market exclusion and identify two sets of activities—redefining market architecture and legitimating new actors—as critical for building inclusive markets. We expose voids as analytical spaces and illustrate how they result from conflict and contradiction among institutional bits and pieces from local political, community, and religious spheres. Our findings put forward a perspective on market building that highlights the on-the-ground dynamics and attends to the institutions at play, to their consequences, and to a more diverse set of inhabitants of institutions.
Financial intermediaries trade frequently in many markets using sophisticated models. Their marginal value of wealth should therefore provide a more informative stochastic discount factor (SDF) than ...that of a representative consumer. Guided by theory, we use shocks to the leverage of securities broker-dealers to construct an intermediary SDF. Intuitively, deteriorating funding conditions are associated with deleveraging and high marginal value of wealth. Our single-factor model prices size, book-to-market, momentum, and bond portfolios with an R² of 77% and an average annual pricing error of 1%—performing as well as standard multifactor benchmarks designed to price these assets.
Financial inclusion--defined as the use of formal accounts--can bring many benefits to individuals. Yet, we know very little about the factors underpinning it. This paper explores the individual and ...country characteristics associated with financial inclusion and the policies that are effective among those most likely to be excluded: poor, rural, female or young individuals. Overall, we find that greater financial inclusion is associated with lower account costs, greater proximity to financial intermediaries, stronger legal rights, and more politically stable environments. However, the effectiveness of policies to promote inclusion varies depending on the characteristics of the individuals considered.
The paper is devoted to the issues of the study of the nature of financial intermediaries in terms of their role in financial markets and their types existing in different regions of the world. The ...place of financial intermediaries among other participants of the financial market is considered, it is described what positive effect they allow to achieve to other entities who use their services. The types of services they provide are outlined, as well as the new types of services of financial intermediaries beginning to be in demand. The American, European and Ukrainian models of classification of financial intermediaries are analyzed and logical connections between the variety of types and types of financial intermediaries, which are represented in the financial market of a certain region and the level of its development, are found. It is found out how classifications can be changed as a result of the development of certain types of financial intermediaries on the example of changing classifications in American economics. The key differences in the American and European classifications are highlighted and their reasons are substantiated. The paper analyzes the financial intermediaries, which are insufficiently developed in Ukraine in comparison with the American and European markets. The other classifications are also provided that may be useful in the process of analyzing the activities of financial intermediaries. The results of this study can be used as a basis for further study of the nature of financial intermediaries in the development of state policies to regulate the financial market of Ukraine and in the development of bills that determine the legal status of financial intermediaries in Ukraine.
Financial Intermediary Capital RAMPINI, ADRIANO A.; VISWANATHAN, S.
The Review of economic studies,
01/2019, Letnik:
86, Številka:
1 (306)
Journal Article
Recenzirano
We propose a dynamic theory of financial intermediaries that are better able to collateralize claims than households, that is, have a collateralization advantage. Intermediaries require capital as ...they have to finance the additional amount that they can lend out of their own net worth. The net worth of financial intermediaries and the corporate sector are both state variables affecting the spread between intermediated and direct finance and the dynamics of real economic activity, such as investment, and financing. The accumulation of net worth of intermediaries is slow relative to that of the corporate sector. The model is consistent with key stylized facts about macroeconomic downturns associated with a credit crunch, namely, their severity, their protractedness, and the fact that the severity of the credit crunch itself affects the severity and persistence of downturns. The model captures the tentative and halting nature of recoveries from crises.
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