Bank Policy Research Articles

Sustainable Finance in the Policies of New Development Bank: Prospects and Challenges

New Development Bank (NDB), the BRICS-led development bank, is tasked with implementing sustainable finance tools to pursue sustainable development among its member countries. With COVID-19 ravaging global and regional economies, it is imperative that NDB and its member states find long-term solutions through sustainable financing. NDB’s General Strategy: 2017- 2021 laid the foundation for operations to mitigate some of the development challenges, as stated in its annual report of 2020. Moreover, sustainable financing will continue to be used in the new strategy 2022-2026. Based on the conceptual framework of sustainable finance, the article tries to locate NDB’s role in generating amenable solutions to development problems in BRICS nations. The article appraises the previous results on development finance by NDB and puts forward the issues and challenges for its next strategic cycle (2022-2026). The author concludes that BRICS-led NDB has credible potential to fulfill the Sustainable Development Goals. Unlike other Bretton Woods Institutions, its policies such as “co-financing” and “multi-currency environment” are in accord with and complement the development visions of major developing economies (EMDCs) like India. In this study, the author employs data from secondary sources such as the latest publications on development economics, especially sustainable finance.

Inflation in the UK after COVID-19

Since January 2020, UK faced a serious epidemic and this COVID had a significant impact on the UK' s economy. In order to make the UK's economy recovered, Bank of England set the monetary and fiscal policy and injected many liquidity into the market to stimulate public's buying demand. After around one and a half years, the inflation grew alongside with the UK economy growth and finally the inflation has reached a historical high level over the past few decade. This essay mainly gather the information from different UK's data website, some news website and bank of England’s official website to introduce the recent inflation and interest rate in UK, analyze the reasons of nowadays high inflation, presented the central bank's recent policy and discussed the prediction of the future inflation and central bank’s policy towards the high inflation. The main findings are that the previous' bank of England’s policy during the COVID-19 period and Russia and Ukraine were the mainly causes and reasons for the nowadays' high and continuous inflation. For the prediction, the inflation in UK is forecast to continue increasing in the short period of time (the end of 2022 and the early of 2023) and it will decrease since the start of late 2023 and be back to the normal stage. Bank of England will continue increasing the bank rate to battle the inflation in the short period of time and then stop add bps and gradually make the bank rate back to the normal value.

Currency crisis: Turkey in 2021

Research methodology This case study is developed from secondary sources. Two types of data were used to develop this case. The statistical data are gathered from sources such as Yahoo! Finance, Trading Economics, Investing.com and The Central Bank of the Republic of Turkey. Reports on market developments are gathered from major news outlets such as Bloomberg, The Wall Street Journal and Reuters. Case overview/synopsis The year 2021 was a volatile year for the Turkish economy: it ended the year with 36% annual inflation, 44% currency devaluation, shortages of basic goods, street protests, etc. How does the Turkish currency crisis in 2021 play out in various financial markets such as the foreign exchange, bond, stock and cryptocurrency markets? This case study introduces students to Turkey’s economic crisis in 2021 and how the Turkish lira’s depreciation, home inflation and central bank policies interact to affect its various financial markets. In the bond market, a depreciated lira heightened the credit risk of Turkey’s bond issuers and effectively crippled the country’s bond market. In contrast, Turkey’s stock and cryptocurrency markets experienced a rally as Turks put their money into equities and cryptocurrencies to hedge against inflation. In international trade, the lira’s fall and the supply chain disruptions in Asia benefited Turkish exporters tremendously. In contrast, Turkish importers suffered. In the Turkish society, the impact of the currency and inflation crisis fell the hardest on ordinary folks, who saw the values of their wages and pension benefits erode. In times of hardship, socially responsible citizens helped the poor by anonymously paying for others’ unpaid bills. Complexity academic level Given the multicomplexity of a currency crisis, this case would be valuable for finance/economics students to understand how a country’s currency crisis and its central bank policies interact to impact its various financial markets. This case is appropriate for courses in Markets and Institutions with a global or cultural learning objective. Learning Objectives 1. Describe how the Turkish lira’s depreciation affected its various financial markets, such as foreign exchange, bond, stock and cryptocurrency markets.2. Understand the cultural perspective on usury, how it exists in modern-day finance, and its’ role in President Recep Tayyip Erdoğan’s economic policy.3. Compare and contrast Turkey’s export and import industries and how they are being affected by the lira’s depreciation.4. Evaluate the risk exposure of foreign investors who participate in Turkey’s stock market given a depreciating lira.5. Evaluate the creditworthiness of Turkish corporations who issued dollar- or euro-denominated bonds as well as issuers of lira-denominated bonds given a depreciating lira.6. Understand the social impacts of a currency crisis and the charitable acts of socially responsible citizens.

The case for independence: Does central bank independence curb the spread of the underground economy?

AbstractThis paper considers an alternate dimension of government institutions associated with the separation of powers between government and its central bank. A more independent central bank is consistent with greater institutional quality and constraints on government. We propose that central bank independence influences the prevalence of the shadow, or underground, economy. Using cross‐country panel data for over 100 nations over the period 1991 to 2012, the results from instrumental variables techniques show that central bank independence curbs underground economic activity. Furthermore, considering different dimensions of independence, we find that independence related to central bank CEO, policy formation, and central bank lending are effective at checking the shadow sector. Overall, these findings are robust to a different measure of the underground economy, correcting for the potential influence of outliers, controlling for the impact of additional factors, accounting for heterogeneity related to the level of development, and considering the heterogeneity related to the prevalence of the shadow sector. The main implication of the results is that nations seeking to reduce the prevalence of the underground economy would benefit from policies that promote central bank independence.

INTERNAL FACTOR ATTRIBUTE IN ISLAMIC BANKS: WHICH ONES CONTRIBUTE TO PROFIT DISTRIBUTION? EVIDENCE FROM MUAMALAT BANK

Competition between financial institutions will have a positive and negative impact on the development of a bank. In this case, the existence of Bank Muamalat Indonesia as the first pioneer of banks operating with Sharia principles for 30 years needs to be assessed for its financial performance. This study aims to determine and analyze the effect of the ratio of CAR, ROA, FDR, NPF, and BOPO on Profit Distribution Management at Bank Muamalat Indonesia for the 2014-2021 period. The data used in this study includes data on Bank Muamalat Indonesia's quarterly financial statements from 2014 to 2021. The statistical test method used to analyze data in this study is Multiple Regression Analysis. The results of this study show that the ratio of ROA and FDR has a significant effect on Profit Distribution Management, while the ratio of CAR, NPF, and BOPO does not have a significant effect on Profit Distribution Management. Simultaneously, the ratio of CAR, ROA, FDR, NPF, and BOPO affects Profit Distribution Management. This research has several implications for bank policy regarding the importance of maintaining financial performance ratios and opinions through increasing bank financing disbursements and optimizing Profit Distribution Management.

The influence of climate change debate on banking policies

The influence of climate change debate on banking policies

The bank lending channel of monetary policy transmission in Vietnam: Impacts of the COVID-19 pandemic and the financial crisis

This paper aims to analyze changes in the transmission of monetary policy via bank lending when considering the impact of the COVID-19 pandemic and the financial crisis. Using bank-level data of 31 commercial banks in Vietnam from 2007 to 2021, we provide consistent evidence that the impact of monetary policy on bank lending tends to be more pronounced in the period of the COVID-19 pandemic. Besides, we document that the bank’s loan supply is more sensitive to monetary policy adjustments during the global financial crisis. Thus, a general pattern can be detected, i.e. the monetary policy transmission through the bank lending channel is stronger under unfavorable macro contexts in Vietnam. Accordingly, it can be suggested that adjustments in the monetary policy of the central bank have still been effective in periods of macro difficulty and the implementation of unconventional monetary policy in Vietnam is not necessary yet. Regression results when using the sample-splitting technique are consistent with those using interactive variables, providing evidence to confirm the robustness of the findings obtained in the study.

LEVYING THE LEVEL OF IMPORTANCE OF THE BANK LENDING PROCEDURES IN THE NORTHEN PHILIPPINES

The operation of private commercial banks in the modern economy is very important to the functioning of the modern financial system. They do this by initiating credit programs in the form of loans and investments, which allows them to bring into our midst the component of the total money supply that is viewed as being of the utmost relevance. The purpose of this study is to determine the significance of bank policies and procedures, in addition to the challenges that these institutions faced during the course of their lending operations at private commercial banks located in the four (4) communities that make up Region 02 in the Philippines. This study's objective is to determine the significance of bank policies and procedures, in addition to the challenges that these institutions faced during the course of their lending operations. In other words, the purpose of the study is to provide a solution to the question, "What difficulties did these institutions encounter while carrying out their lending operations?" According to the findings of this study, lending procedures enable financial institutions to more precisely evaluate the potential downsides of providing borrowers with credit. It enables the bank to evaluate the creditworthiness of the consumers, which in turn decreases the risk that the customers will be unable to repay the loans they have taken out. Having transparent loan procedures is good for both the borrower and the lending institution. This is because it makes it easier to comprehend the circumstances of the loan, such as the interest rate and the repayment schedule. As a consequence of this clarity, the borrower is able to create precise plans, which guarantees that the transaction will be transparent.

The Policy Role of Bank Syariah Indonesia for MSMEs Sector in Community Economic Empowerment

<p>The people's economy can be improved through the micro business sector. The issue of the role of Bank Syariah Indonesia (BSI) as a competent Islamic bank is a new hope for these business actors. Unfortunately, previous studies have not disclosed in depth the programs and policies of BSI after the merger. This study aims to determine the policy of Islamic banking toward the micro-business sector to empower the community's economy. The study was conducted on Bank Syariah Mandiri (BSM), which merged with two other large Islamic banks, Bank Rakyat Indonesia Syariah (BRI Syariah) and Bank Negara Indonesia Syariah (BNI Syariah), and became BSI. The research design used a qualitative approach with data collection techniques in interviews, observation, and documentation. BSI is a bank that collects and distributes funds to the public based on sharia principles. The findings show that BSI maintained its reputation as a competent Islamic bank in community empowerment efforts. This is evidenced by the inclusion of BSI in the Forbes list of The World's Best Banks 2021 because it has met the criteria for trust, terms and conditions, customer services, digital services, and financial advice. Although it has merged with two other Islamic banks, BSM continues to use the same system as before, except for some adjustments related to product policies regarding costs, benefits, and margin provisions by applicable regulations. Community empowerment through Micro Business products refers to Law Number 21 of 2008 concerning Islamic Banking. In its development, to support the community's economy, BSI carries out a sustainable finance agendavillage economic programs, food security, sociopreneur scholarships, and siding with MSMEs.</p><strong>Keywords</strong>: Bank Syariah Indonesia; policy; MSMEs

The Effect of Liquidity, Investment Opportunity Set, Free Cash Flow, and State-Owned Enterprise on the Dividend Policy of Bank Listed in the Indonesia Stock Exchange

The Effect of Liquidity, Investment Opportunity Set, Free Cash Flow, and State-Owned Enterprise on the Dividend Policy of Bank Listed in the Indonesia Stock Exchange

The Effect of Liquidity, Investment Opportunity Set, Free Cash Flow, and State-Owned Enterprise on the Dividend Policy of Bank Listed in the Indonesia Stock Exchange

The purpose of this study is to know the effect of liquidity, investment opportunity set, free cash flow, and state-owned enterprise on the dividend policy of bank companies listed on the Indonesia Stock Exchange (IDX) in 2011-2021. This study uses a purposive sampling technique to determine the research sample. The number of companies selected by the predetermined sample criteria is 8 companies from 46 companies listed in the IDX bank sector. In this study, an analytical test was conducted using descriptive statistics, classical assumption test, multiple linear regression test, t-test, and F-test. The result of this study showed that free cash flow gives a positive and significant influence on the dividend policy, while dividends on state-owned enterprise banks are fewer than on private banks. While liquidity and investment opportunity sets don't significantly influence the dividend policy.

Central bank coordinated policies and bank market power: an insight from the African context

The paper examines the impact of central bank regulatory policies on market power in Africa. The study presents a representative sample of 52 African economies over the period 2006–2020. The study shows that the individual regulatory policies of the central bank (i.e. monetary and macro-prudential policies) enhance banks’ market power. Also, it reveals that central bank regulatory policies are better coordinated, as complements, in achieving greater market power of banks in countries with strong central bank independence (CBI) framework. However, the coordinated policies are substitutes in determining bank’s market power in countries with weak CBI framework. The policy implication is that the right policy mix of coordinated central bank regulatory policy framework is important in determining an optimal outcome of bank’s market power in both an inclusive central bank (monetary-prudential) policy targeting economies and an independent policy targeting economies.

North Africa: the climate emergency and family farming

ABSTRACT This article examines recent international financial institution and national government policy in North Africa intended to address the climate emergency. It focuses on the role of the World Bank and general policy trends since the 1970s. These policy trends fail to understand the continuing centrality of small-scale family farming to social reproduction and food production. The article stresses the significance of historical patterns of underdevelopment, and the uneven incorporation of North Africa into global capitalism. An understanding of the longue durée is crucial in understanding why, and how, agrarian transformations have taken the form that they have, and why national sovereign projects and popular struggles offer an alternative strategy to counter imperialism and neo-colonialism. International financial institutions’ preoccupation with policies of mitigation and adaptation to climate change fails to address how poverty is generated and reproduced.

Measuring Monetary Policy in the Euro Area Using SVARs with Residual Restrictions

This study measures the effects of monetary policy in the euro area using a small number of sign and magnitude restrictions on the residuals of a structural vector autoregression. We derive the dates and directions of these shocks from high-frequency financial market data around official European Central Bank policy announcements. Based on an in-depth narrative analysis and a comparison of the results with those of a standard high-frequency approach, we argue that our approach is purged from central bank information effects. Despite our rather agnostic identification strategy, we find clear and conclusive effects of monetary policy shocks on a wide range of macroeconomic variables. (JEL C32, E43, E44, E52, E58, F33, G14)

Quelling inflation: The role of the public

Members of the Monetary Policy Committee (MPC) of the Bank of England seek to subdue inflation using ‘monetary policy’ to regulate the availability of money and credit to the financial system. The central bank ‘policy rate’ is the blunt instrument conventionally employed to affect the pacing of economic activity, stimulating or retarding growth. Credibly explaining that the rise in interest rates – the ‘tightening’ of monetary policy – underway at the moment will continue suppressing demand for goods and services until an inflation target of around 2 per cent is achieved is the emphatic message the bank seeks to convey. Such intentionally destructive and potentially brutal interventions are the critical aim of current bank policy. This article demonstrates how the design of the contemporary monetary regime, which presents itself unequivocally as the outcome of macroeconomic developments, can be recast in anthropological terms, thus revealing the role of the public in the unfolding monetary drama.

Alberto Beneduce, a Technocrat in the Fascist Era

In the 1930s, Alberto Beneduce was considered ‘the dictator of the Italian economy’. He was the main financial advisor of the Duce; he founded many public entities, corporations and state-owned companies; and he mastered Italian banking and industrial policy between 1925 and 1940. Beneduce's career is particularly important for his position within the regime: he was very close to Mussolini but he never had any political role. He represented the spearhead of that bureaucratic and managerial class that neither joined the Fascist Party nor opposed it, yet chose to cooperate with the regime once it was established. In political terms, the figure of Beneduce has remained in a twilight zone. This article takes into account the vision of Alberto Beneduce throughout his career, focusing particularly on the fascist period when he played a major role as gatekeeper between financial, industrial and political power.

Open Banking: Between Cooperation and Competition

The emergence of financial technology companies (fintechs) has spurred expectations that they will lead to large-scale disintermediation in finance and significantly disrupt the banking industry. Regulators in several jurisdictions have supported their market entry through the adoption of open banking policies, whose purpose is to facilitate third-party access to banking data, subject to customer consent. Data access has been seen as a competitive bottleneck in the banking industry, while customers hold the ultimate ownership over their data. This paper aims to critically assess proclaimed promises of open banking by analysing existing barriers to entry and market-based collaborations between banks and fintechs as identified in the literature. Since the expected effects can vary depending on the regulatory model embraced, the paper also outlines the economic trade-offs of different regulatory solutions. Consequently, the paper may help regulators who are considering introducing or designing open banking policies.

Central bank policy formulation under COVID-19 in Ghana: A fit-for-purpose?

<p><big>This paper evaluates the fit-for-purpose of the monetary policy measures implemented by the Bank of Ghana in response to the COVID-19 pandemic. We examine the effectiveness of the BoG’s policy interventions in the context of vector autoregressions augmented with macroeconomic and financial indicators. We demonstrate that the BoG’s monetary policy measures have had nominal, real, and financial effects. The monetary interventions have been successful, as evidenced by the gradual reduction in the sovereign spread, improved financial stability, and increased real economic activity. Our findings suggest that balance sheet actions are less effective and should be moderated in the conduct of monetary policy in jurisdictions without zero lower bound constraints. However, the analysis indicates that in times of crisis, central banks should deploy both standard and non-standard tools to stabilize dysfunctional financial markets and avoid a deflationary spiral. The historical and variance decomposition of the data reveal that monetary policy shocks have historically made the largest contributions to the targeted macro-financial aggregates during the pandemic episodes.</big></p>

The globalization of corporate control

The internationalization of corporate control is a complex and poorly understood aspect of globalization, as it is challenging to trace controlling shareholders due to often opaque structures of ownership. We identify controlling shareholders for 22,000 listed firms to study the globalization of control. The network of international control appears very sparse, with strong home bias. A baseline gravity structure works well, as bilateral links are more potent for populous, affluent, and proximate countries. Institutions and tax haven status at source and destination play a modest role. Legal similarities, economic policy coordination, and cultural, linguistic, and historical ties play a non-negligible role telling of asset market and informational frictions; policy and legal similarities matter for financial institutions and banks, while informational/cultural barriers for individuals/families. International diversification motives play no major role. The results have implications for theoretical works on the internationalization of corporate control markets.

Errors and Challenges Associated with Investing in EMU Government Bonds

This article highlights some of the main practical errors and challenges associated with investing in Economic and Monetary Union (EMU) government bonds and the difficulties in implementing EMU government bond strategies. These challenges refer to both portfolio allocation and to factor bond portfolios. Different country economic fundamentals, central bank policy, market timing, market risks, model and management risks, liquidity, and idiosyncratic country risks as well as spillover effects should be considered when investing in individual EMU government bonds. These essential properties of EMU bonds are not adequately addressed in portfolio allocation models (e.g., the tracking error or the mean–variance optimization) applied to single bond portfolios from equity investing. The main EMU government bond disparities are associated with country risks, which can be generalized to the main difference between core and periphery country yield spreads.