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Deposit guarantee schemes : a European perspective
\"Deposit guarantee schemes are a crucial element of modern financial safety nets. Despite positive achievements in the integration of European financial markets and economies, the recent financial crisis confirmed that closer coordination of prudential policies and safety nets is now required. Against this background, Francesca Arnaboldi highlights the importance of one of the three pillars of the Banking Union, the common mechanism for insuring deposits. She suggests that integrated financial markets require a European solution with regard to deposit insurance and that the establishment of a pan-European scheme could address the problems for large cross-border banks. The book is an ideal resource for academics and practitioners interested in the new regulatory framework on deposit guarantee schemes and its link to the first two pillars of the Banking Union. \"-- Provided by publisher.
Book
The Use of Blanket Guarantees in Banking Crises
In episodes of significant banking distress or perceived systemic risk to the financial system, policymakers have often opted for issuing blanket guarantees on bank liabilities to stop or avoid widespread bank runs. In theory, blanket guarantees can prevent bank runs if they are credible. However, guarantee could add substantial fiscal costs to bank restructuring programs and may increase moral hazard going forward. Using a sample of 42 episodes of banking crises, this paper finds that blanket guarantees are successful in reducing liquidity pressures on banks arising from deposit withdrawals. However, banks' foreign liabilities appear virtually irresponsive to blanket guarantees. Furthermore, guarantees tend to be fiscally costly, though this positive association arises in large part because guarantees tend to be employed in conjunction with extensive liquidity support and when crises are severe.
eBook
Short-term prediction of bank deposit flows: do textual features matter?
Motivated by the successful usage of machine learning around computer science and its wide acceptance from the finance literature, we utilize monthly data spanning the period 2008–2018 for the Euro area peripheral countries, in order to embark on a two-fold mission. First, to construct short-term prediction models for bank deposit flows in the Euro area peripheral countries, employing machine learning techniques. Second, to examine whether textual features enhance the predictive ability of our models. From the variety of models tested, we find that Random Forest models including both textual features and macroeconomic variables outperform models including only macro factors or textual features. Monetary policy authorities or macroprudential regulators could adopt our approach to timely predict potential excessive bank deposit outflows and assess the resilience of the whole banking sector in the Euro area peripheral countries.
Journal Article
Do Islamic banks bear displaced commercial risk? Evidence from Indonesia
The market share of Islamic commercial banks in Indonesia is small despite the fact that Indonesia is a predominantly Muslim country. This paper investigates the asymmetric effect of the deposit rate of conventional banks on Islamic bank deposits in Indonesia applying a dual banking system. This study employs the Non-linear ARDL (NARDL), using monthly data and covering 2009:M1–2019:M7. The findings clearly confirm the long-run relationship between the Islamic deposit and conventional deposit rate for any maturity. Furthermore, the impact of conventional bank deposit rate is asymmetry on Islamic bank deposit for any maturity, implying that Islamic bank deposits react differently to up and down in conventional bank deposit rates, but it tends to weaken for longer maturity. More interestingly, based on asymmetric results, Islamic bank deposits adjust at a higher speed to an increase in conventional deposit rates compared to a rise in the Islamic deposit rates. The results imply that Islamic bank depositors may transfer their funds to conventional bank deposits as conventional bank deposit rates rise in a dual banking environment known as displaced commercial risk (DCR). AcknowledgmentsThis work was funded by the Centre for Economic Studies, Department of Economics, Faculty of Business and Economics, Universitas Islam Indonesia, Yogyakarta, Indonesia under Grant Number: 164.a/Dir.PPE/VI/2020.
Journal Article
Determinants of bank deposit in a small economy’s banking sector: a study of Fiji
Purpose
Deposits, a liability component of banks’ balance sheet, are an important source of funding for commercial and retail banks. In this study, the authors consider deposits as dependent variable and examine factors (bank-specific, macrofinance and structural) that could plausibly explain deposits. Subsequently, the findings are expected to support analysts, bank managers and regulators, especially in small economies such as Fiji, for asset–liability management.
Design/methodology/approach
This study uses a balanced panel of six commercial banks and two credit institutions over the period 2000–2022. To control for bank heterogeneity, a fixed-effect regression method is used.
Findings
Bank-specific variables such as bank size, profitability, loan-to-deposit ratio and bank stability are positively associated with bank deposits, whereas the capital adequacy ratio is negatively associated with bank deposits. Macroeconomic variables such as remittances and gross domestic product per capita are positively associated with bank deposits. Moreover, institutional variables such as control of corruption, political stability and regulatory quality are positively associated with bank deposits. However, tail events such as the global financial crisis of 2007–09 and the COVID-19 pandemic negatively influence bank deposits. Structural breaks for 2007 and 2011 of two banks (Bank of the Baroda and Bank of the South Pacific, respectively) are positively associated with bank deposits.
Originality/value
Previous studies have considered profitability, competition, nonperforming loans and stability of banks in Fiji. To the best of the authors’ knowledge, this study is the first to consider the determinants of bank deposits, an important source of funds for banks in many small countries including Fiji. In addition, this study examines the impact of structural breaks, tail events such as the recent pandemic (COVID-19) and institutional variables.
Journal Article
A Study on the Impact of COVID- 19 on Investor Behaviour of Individuals in a Small Town in the State of Madhya Pradesh, India
Purpose: To understand how the COVID-19 pandemic has impacted investment and financial decisions of individuals in small towns in developing nations such as India. Methodology: A literature review was undertaken on COVID-19 and steps taken by the government to fight the pandemic. A sample survey was conducted to determine the impact of COVID-19 on individuals’ financial transactions in Madhya Pradesh (MP) . The respondents either belonged to the service sector or owned businesses. The relationship between the COVID-19 pandemic and change in investment decisions of individuals with respect to SIPs was studied. Findings: Significant association was found between measures taken to prevent the spread of COVID-19 (such as lockdown and travel restrictions) and individual income; such preventive measures directly impacted savings and investment behaviour. Indeed, respondents reported a 43% drop in SIP investments during the COVID-19 pandemic. While decline in investment was common to genders, the difference between percentage decline was statistically non-significant. Furthermore, investment behaviour did not vary with investor age. Research Implications: Results highlight the socioeconomic effects of the COVID-19 outbreak at the micro-level and may enable financial institutions and individuals to better handle such situations in future. The scope of the present research is limited. Future studies could consider larger samples and different contexts to gain deeper insights into the socioeconomic effects of the COVID-19 pandemic. Studies could also suggest policies and measures to help governments effectively deal with future crises. Originality/ Value: Hitherto, the impact of COVID-19 outbreak on investment decisions of individuals in Tier 3 cities had remained under-examined; this is one of the first studies to carry out such an investigation.
Journal Article
Multiple Currency System and Commercial Bank Deposit Mobilisation in Zimbabwe
The study focused on the determinants of commercial bank deposits in Zimbabwe’s banking sector during the multiple currency period (2009 to 2017). A total of 13 registered banks were used in this study. Results from the random effects model exhibited that number of branches, deposit interest rate, liquidity and economic growth were positively significant in influencing the commercial banks' deposits. The results infer that both bank-specific (internal) factors and macroeconomic (external) factors affect the deposit mobilisation ability of commercial banks in Zimbabwe under a multi-currency system. The study recommended that commercial banks open more branches to be more accessible to society. The Reserve Bank of Zimbabwe (RBZ) is encouraged to prudently supervise and regulate commercial banks so that liquidity crunch and related risks can effectively be managed. Commercial banks are recommended to increase the deposit interest rates to attract more deposits, thereby increasing their capacity to finance capital projects.
Journal Article
THE DEPOSITS CHANNEL OF MONETARY POLICY
We present a new channel for the transmission of monetary policy, the deposits channel. We show that when the Fed funds rate rises, banks widen the spreads they charge on deposits, and deposits flow out of the banking system. We present a model where this is due to market power in deposit markets. Consistent with the market power mechanism, deposit spreads increase more and deposits flow out more in concentrated markets. This is true even when we control for lending opportunities by only comparing different branches of the same bank. Since deposits are the main source of liquid assets for households, the deposits channel can explain the observed strong relationship between the liquidity premium and the Fed funds rate. Since deposits are also a uniquely stable funding source for banks, the deposits channel impacts bank lending. When the Fed funds rate rises, banks that raise deposits in concentrated markets contract their lending by more than other banks. Our estimates imply that the deposits channel can account for the entire transmission of monetary policy through bank balance sheets.
Journal Article
Understanding Bank Runs: The Importance of Depositor-Bank Relationships and Networks
We use unique depositor-level data for a bank that faced a run to understand the factors that affect depositor behavior. We find uninsured depositors are most likely to run. Deposit insurance helps, but is only partially effective. Bank-depositor relationships mitigate runs, suggesting that relationship with depositors help banks reduce fragility. In addition, we also find that social networks matter. Finally, we find long-term effects of a solvent bank run in that depositors who run do not return back to the bank. Our results help understand the underlying dynamics of bank runs and hold important policy implications.
Journal Article