Banking Crisis Research Articles

Євроінтеграційні імперативи врегулювання неплатоспроможності банків в Україні

The aim of the article is to study the economic essence and ways to settle the insolvency of banks in the context of European regulatory imperatives. Not all banks are capable of stable functioning under conditions of economic imbalances, crises and uncertainty, which leads to the withdrawal of banks from the market. The European vector of Ukraine’s development requires the implementation of European rules for resolving bank insolvency in order to reduce the negative consequences of their possible bankruptcy. Attention is focused on the understanding of an insolvent bank as financially unstable. The manifestations of insolvency are defined and it is proposed to distinguish between full and technical (technical default) insolvency of banks. Practical examples of such interpretation are provided, in particular, JSC «JSCB «Arkada» – as an example of a complete default and JSC «Bank Sich» – as an example of a technical default on the realized market risk. The article discloses the essence, factors and signs of insolvency, which are constantly evolving. It is noted that, in fact, insolvency is manifested in the square formed of four concepts – incapacity, non-fulfillment, non-payment, and insolvency. The content of insolvency settlement is disclosed, which provides for the adoption of appropriate measures aimed at preventing and/or overcoming the consequences of the bank’s inability to perform (partially or completely) its functional duties in case of any type of insolvency. Certain stages of bank insolvency and measures of influence have been allocated. In accordance with the European BRRD Directive, the goals and principles of insolvency settlement have been formulated. The objectives must be balanced according to the nature and circumstances of each case, and they also influence the choice of method and tools of settlement. The need to harmonize domestic legislation with European rules is noted. In particular, the BRRD recommends the following settlement tools: asset separation tool, bail-in tool, sale of business tool, bridge institution tool. The article discloses the directions of their implementation in domestic practice.

The Origin of the Russian Banking System From 1991 to 1995

The article provides a history of Russia’s modern banking sector. Russia has stabilized after a great many socio-economic and socio-cultural transformations, and the time is apt for a historical treatment of the topic. The author analyzes the development of the banking system from its beginnings during perestroika when the first commercial banks appeared in the Russian Federation. The formation of the Russian State Bank in July 1991 initiated the first stage of development, which ended in late 1995 when the banking community was able to recover from Russia’s first systemic banking crisis and adapt to market realities. The article identifies and analyzes the distinctive features of the banking sector during the first stage of its formation. Before perestroika, the main task of the Soviet Union’s single-tier banking system was to arrange financing for the economy and supervise budgetary spending and estimates. Even during its early stages the Russian banking system began to coalesce into two tiers as banks were exposed to market conditions, gained experience in commercial credit, and dealt in market-based financial instruments. When the Soviet Union collapsed, there were 869 banking organizations operating in Russia, and these provided a basis for structuring the banking sector during the next stage of the economy. After 1991 the country had to meet the challenge of detaching the economy of the RSFSR from the post-Soviet republics, rebuilding a system for mutual settlements in a national economy disrupted by crisis, and finding ways to regulate the banking sector and make it more reliable

Do Bank CEOs Learn from Banking Crises?

Do Bank CEOs Learn from Banking Crises?

Проблеми оцінки активів у процесі ліквідації банку

The aim of the article is to identify problematic issues of valuation of property (assets) of banks that are in the process of liquidation, and substantiate proposals for the desired solution, taking into account the need to protect the rights of bank creditors. Although the bankruptcy of banks causes significant economic and moral losses, the processes of removing insolvent banks from the market, their reorganization or liquidation are constantly taking place. Therefore, regulators and banks that have been declared insolvent face many questions, including the adequate valuation of banking assets and the determination of the liquidation estate. The article discusses approaches to asset valuation and features of their application in Ukrainian practice, as well as peculiarities of the sale of assets of banks in liquidation according to the Dutch auction model. It is noted that the imperfection of management of banks’ assets in the process of their functioning leads to discrepancies in the valuation of these low-quality assets in the liquidation procedure. It is determined that the ratio between the estimated value of assets and their book value for banks declared insolvent is on average 26.2 %, and the median value is 22.3 % This leads to a number of problems, including the inability of the Deposit Guarantee Fund (DGF) to ensure the repayment of part of the bank’s liabilities, which could be repaid in case of timely acceptance of tender offers at market value. It is noted that the most liquid assets, which are real estate and property, occupy an insignificant share in the structure of the liquidation mass – about 5 %, and the conversion rate in the sale of real estate quite often reaches 200 %. It is proposed, in accordance with European practice, to empower the Fund to monitor the assets of banks in the process of their functioning. The expediency of valuating assets not from the position of doing business «as usual» but from the point of view of the objective need to sell assets, focusing on the quick sale of assets at a market price, is emphasized. In order to improve the process of valuating the assets of an insolvent bank and focusing on the quick and transparent sale of the bank’s assets, it is proposed to implement the international experience of using loss-sharing agreements into domestic practice.

ADAM SMITH AS A MODEL FOR THE MODERN MONETARY-POLICY ECONOMIST

AbstractA key insight from Adam Smith is that economists should base their conclusions about a monetary institution or policy on a careful study of the history of that institution or policy, a study that includes the experiences of other countries. To illustrate Smith’s reliance on financial history we cover five current monetary problems that have close analogies with problems that Smith discussed: (1) inflation, (2) banking panics, (3) public debt, (4) usury laws, (5) central bank digital currencies.

Niški novčani zavodi u bankarskom sistemu Kraljevine Jugoslavije

At the end of the 19th and the beginning of the 20th century, a large number of local financial institutions were established in the Kingdom of Serbia. Nis was the second largest city in Serbia, and at the same time an important traffic and strategic center. By the end of the 19th century, three banks were established in Nis, and by the beginning og the WWI, their number had rise to eight. It was characteristic of almost all these financial institutions that they were the owners of mills, brick factories, textile factories, leather factories, and warehouses. The beginning of the WWI and the occupation of Serbia caused great material losses to the banks in Nis, especially from the Bulgarian army, which took away all movable property after the retreat. Among the human victims was a relatively large number of shareholders, board members and officials of financial institutions. With the end of the war, the banks could not immediately resume their operations, and for the first two years mostly collected their assets, and the two Nis banks could not continue their operations due to the high degree of damage. The remaining banks, accustomed to working with nonbanking businesses, continued this practice and invested in trade and industry. The chronic need for capital influenced the establishment of six more banks in Nis after the war. However, by 1925, two banks went bankrupt, and this happened to two more financial institutions by the end of the decade, so that the banking crises in the Kingdom of Yugoslavia was met by eight Nis banks. Due to the great crisis, business in the 1930s was extremely limited. Two financial institutions in Nis were under protection, and two managed to operate successfully until the outbreak of the WWII on the territory of Yugoslavia, when all normal work of banks was impossible.

Системи раннього попередження в банках як інструментарій антикризового управління

The aim of the article is to substantiate the functionality and ways to modernize early warning systems in banks as an instrument for anti-crisis management. It is proved that banking crises at the macro and micro levels are identified by: bank runs (banking panic), growth of interest rates on deposits and loans; provision of the State financial assistance to banks to avoid a systemic crisis; reorganization and restructuring in the banking system. It is proposed to consider early warning systems as an aggregate of methods and models that allow to identify potential and real signs of crisis phenomena in banks at the macro and micro levels, and to develop preventive measures of anti-crisis management at the early stages of manifestation. It is noted that the creation of an early warning model is a sequential process that includes three stages: preliminary modeling, modeling, and post-modeling. Such actions are directed towards defining the goals and objectives of the model, evaluating the model, and substantiating the initial representativeness of the model. An approach to systematization of early warning indicators with their division into external and internal ones has been developed. External indicators include: insufficient level of capitalization and profitability, high share of non-performing loans, banking risks, unsatisfactory asset quality, bank runs, imbalance of assets and liabilities in terms of amounts and terms, liquidity problems, and others. Internal indicators are as follows: low level of capitalization, quality of assets of an individual institution, deposit potential, liquidity, profitability, spread, etc. Approaches to improving early warning systems have been developed by modernizing them on the basis of artificial intelligence. An anti-crisis management instrumentarium in banks has been proposed, depending on the type and depth of the crisis. The instruments are systematized into non-market ones, which include emergency measures, restrictions on banking competition and the scope of activity, and market instruments – financial, operational and structural. Prospects for further research are the development of indicators for assessing the depth of the crisis at the macro and micro levels along with determining its level, substantiating strategic and tactical methods of anti-crisis management.

Introduction: Volatility in finance, art, and culture

AbstractThe term ‘volatility’ applies to changeability: both that which can be measured, such as temperatures and stock prices, and that which cannot be easily measured, such as affects and emotions. Quantitative financial volatility has typically been studied quite separately from art, culture, and everyday life. Randy Martin's work, which addressed the resonances between volatility in dance and finance, was a notable exception. Martin focused on derivatives, which played a critical role in the development of financialized capitalism, especially between 1973-2008. Arguably, however, derivatives are no longer the key drivers of volatility as a social and cultural logic. New assemblages of asset managers, rentiers, and online platforms - along with a pandemic, new banking crises, and ongoing climate emergency - are reshaping how volatility is produced and navigated. How might we rethink volatility in order to better grasp its changing logics? This introduction unpacks existing debates on volatility in finance, art, and culture, suggesting several directions in which new work in this area might depart from existing frameworks - some of which are pursued in this special issue. We focus on three broad lines of exploration: rethinking the intellectual histories of volatility; rethinking volatility across disparate post-2008 contexts; and imagining volatile futures through art practice.

The Effect of Bank Recapitalization Policy on Credit Allocation, Investment, and Productivity: Evidence from a Banking Crisis in Japan

The Effect of Bank Recapitalization Policy on Credit Allocation, Investment, and Productivity: Evidence from a Banking Crisis in Japan

Banking Crisis of the 1880s in the Russian Empire: New Quantitative Data and Estimates

The study deals with the most significant crisis in the history of Russian banking, which occurred when 49 municipal banks and 13 mutual credit societies went bankrupt from 1882–1889. Historians have explained the causes of the crisis in various ways; however, these explanations are not fully verifiable due to lack of consolidated quantitative data on operations for municipal banks and mutual credit societies. Therefore, a new quantitative data set on these credit institutions was composed for this study. Comparison of the dynamics of joint-stock commercial banks, municipal banks, and mutual credit societies for 1875–1895 revealed that the decline in municipal banks was particularly sharp and deep, and it did not correlate with the dynamics of other banking institutions. This paper proves that the municipal banks crisis was caused by the accumulation of bad loans, poor financial stability, and the lack of proper control by municipal councils and the Ministry of Finance. Overcoming of these problems launched a new phase of banking regulation and supervision in the Russian Empire, which has been underestimated in historiography. The “pushing out” of municipal banks from risky operations was necessary to protect the financial interests of the municipal self-government associated with these banks. However, the crisis also had a pronounced regional perspective because most of the bankruptcies occurred in the Central Black Earth Region, and therefore the crisis was caused by a contraction in agricultural exports due to falling prices, combined with local crop failures in the first half of the 1880s.

Central Bank Retail Deposits and Bank Runs: Evidence From City-Level Panel Data in Spain, 1922–1934

Central Bank Retail Deposits and Bank Runs: Evidence From City-Level Panel Data in Spain, 1922–1934

CEO Ownership, Risk Management, and Bank Runs at Unlimited Liability Banks during the 1890s

CEO Ownership, Risk Management, and Bank Runs at Unlimited Liability Banks during the 1890s

Stock Market Price Effect of the Silicon Valley Bank Failure – A Pre and Within Analysis

State-chartered commercial bank – Silicon Valley Bank (SVB) was the primary subsidiary of SVB Financial Group. In March 2023, after central bank–endorsed interest rate hikes during the 2021–2023 inflation surge, there was a bank run on its deposits, which led to its collapse. This marked the third-largest bank failure in U.S. history and took place alongside the March 2023 United States bank failures. This paper evaluated the differential effect of Silicon Valley Bank failure on the stock market. Two objectives were pivotal, namely the examination of differential stock price performance of SVB prior to failure. Secondly is the examination of the differential effect of SVB failure on the US S&P500 stock price performance. Applying a t-test statistics for difference in means, the results show a significant difference in mean stock price of SVB between a month and two weeks period before SVB failure at P<0.05, with higher variance within the week before failure. Furthermore, the t-test results disclose a highly significant difference in US S&P500 mean stock price between February 2023 (a month before failure) and March 2023 (within the month of failure) at P<0.001 with a high variance in March; however, this effect did not last long. Accordingly, the paper concludes that the failure of a prominent financial institution may trigger ripples in a major stock market index. Additionally, investors should be cautious of an unprecedent and abnormal higher variance in a corporate stock price as this might be an ominous indicator of potential financial failure. This paper contributes a current information for managers and particularly for speculative investors for decisions on selling short or long. It recommends further research to examine the effect of SVB failure and FDIC intervention on stock markets.

Bank Run, Interrupted: Modeling Deposit Withdrawals with Generative AI

Bank Run, Interrupted: Modeling Deposit Withdrawals with Generative AI

Bank Runs and Design Flaws of Deposit Insurance

Bank Runs and Design Flaws of Deposit Insurance

Intraday liquidity modelling using statistical methods

The correct approach to liquidity risk management in banks is essential for securing their financial stability. The position of liquidity risk among the rest of bank risks is specific because the negative outcome is not just a loss, but directly the bankruptcy of the institution. Such an occurrence might start a chain reaction and bring uncertainty into the entire financial system. This paper focused on one source of liquidity risk, i.e. management of liquidity throughout the day. The management of intraday liquidity is related to cash inflows and outflows occurring during the business day, their timing and settlement. In 2013, the BCBS published the document Monitoring tools for intraday liquidity management, often referred to by the regulatory authorities. It offers basic concepts of intraday liquidity monitoring and sketchily defines stress scenarios. The author suggests possibilities of how to perform intraday liquidity stress testing in a bank, which is often required by supervisors, even though no detailed approach or methodology as to how to proceed was introduced by the regulators. The research was carried out on anonymised data of cash inflows and outflows recorded on a central bank reserves account of one of the Slovak commercial banks. Both a base and four stress scenarios were developed and suggested for the better understanding of expected cashflows in standard conditions and during stress. The author’s aim was to develop scenarios in a non-traditional way by means of a basic and EWMA historical bootstrap simulations, respectively. Stress scenarios are supposed to simulate reputation crisis, disruption in RTGS payment system, increased deposit outflows and bank run. The purpose of the proposed intraday liquidity monitoring scenarios was to strengthen resilience not only for a concrete bank, but also the entire financial system. Intraday liquidity monitoring is a key factor in securing stability of the financial sector.

Финансовые кризисы и финансовое заражение в странах Латинской Америки

The article deals with modern financial crises and features of their spread in Latin America. The classification of crises and ways of their identification are presented. The interconnectedness of modern financial crises is emphasized, which leads to the emergence of double and triple crises. Such crises have been repeatedly recorded in Argentina, Mexico, Uruguay and other countries. Over a period of more than fifty years, Latin America experienced 165 financial crises, with the largest share of them occurring in currency crises. The article proposes the indicator “crisis burden on the countries of Latin America” – its calculation for the period 1970–2019 showed that the region is characterized by alternating growth and decrease in the burden from banking and currency crises with a relatively stable load from debt crises. The maximum intensity of financial crises was observed in the 1970–1980, and then it decreased, although there were isolated spikes. The interconnectedness of crises is analyzed in the context of the effects of financial contagion – the transmission of shocks through different channels from one country or region to another country or region. Two main approaches explaining the mechanisms of transmission of crises between countries have been allocated. The results of studies indicating the direction and extent of financial contagion in Latin America were discussed. In particular, it is shown that contagion in the crisis periods of 1990–2000 spread both within the region and from the United States through trade and financial channels. The article presents the results of its own empirical study, which also confirmed the existence of contagion in this region. For the calculations, daily data on the stock indices of 8 Latin American countries over a long period of time were used. With the help of econometric tests for shifts in correlations (Forbes-Rigobon test and coskewness test), it was found that the recipients of contagion that spread through the stock market channels from the United States during the global financial crisis of 2007–2009 were countries such as Argentina, Brazil, Colombia and Mexico. During the crisis caused by the spread of COVID‑19, only Mexico was susceptible to contagion. This made it possible to draw a conclusion about the resilience of Latin American economies to the pandemic shock and the effectiveness of restrictive government measures.

An Analysis of the Impact of Digital Financial Inclusion on Financial Stability

Over the last few years the world at large have witnessed a rapid development in digital finance providing a promise to accelerate financial and economic inclusion. This has led to an inclusive growth focused on financial inclusion as a policy issue. Digital financial services have allowed governments to disburse funds to those in need quickly and have opened up new opportunities to many households and firms that had limited or no access to formal financial services. The major objective of the study was to examine the impact of digital financial inclusion on financial sector stability. The study adopted a quantitative research design and used two-step Generalized Method of Moments for dynamic panel data to explore such a relationship in twelve selected banking institutions for the period 2013 to 2023. An index of digital financial inclusion, z-score, real GDP, loans to asset ratio as well as inflation were used as data variables. The results of this study suggest that digital financial inclusion has a significant positive relationship with bank stability (z-score). Economic growth has a marginal positive effect with bank stability. In order to achieve sustainable digital financial inclusion, the study calls for policymakers to ensure digital financial literacy for all since it feeds into bank stability and also reduces bank insolvency. They should also find ways of enhancing depositor confidence and trust in the banking industry.

Аналіз тенденцій розвитку грошово-кредитної системи України

The successful functioning of the national monetary system determines the efficiency of the country’s money circulation, the effectiveness of monetary regulation measures taken by the country’s central bank, and the ability to meet the needs of consumers for various financial services, as well as the effectiveness of measures to rebuild our economy in the post-war period and the ability to function normally under martial law. The purpose of the article is to analyze the trends in the development of the monetary system of Ukraine, to identify the stages of its formation along with the main problems in the current period. The publication examines the formation and stages of development of the monetary system in Ukraine, namely, identifying the following key stages: since 1991 – the beginning of the institutional formation of the monetary system; since 1996 – introduction of the national currency; since 1999 – overcoming the global financial crisis of 1998 and further development of the national monetary system; since 2009 – overcoming the consequences of the global financial crisis of 2008; since 2015 – overcoming the consequences of the russian-Ukrainian war of 2014; since 2020 – overcoming the consequences of the global financial crisis of 2019, accelerated by the coronavirus pandemic; since 2022 – stabilization and overcoming the consequences of the active phase of russia’s aggression against Ukraine. Some key indicators characterizing the country’s monetary system are analyzed, namely: the dynamics of the country’s monetary base, changes in the discount rate, annual growth in the consumer price index, dynamics of the number of operating banks and their assets, dynamics and structure of loans granted by banking institutions, changes in the return on assets and capital of banking institutions. The main risks and causes of their occurrence in the monetary system of Ukraine during the wartime are analyzed. The main current problems of the monetary system of Ukraine in the wartime period are identified, and some directions for overcoming them are proposed. It is proposed that in order to sanitize the banking sector, it is necessary to withdraw insolvent banks from the market; to ensure inflationary stability, it is necessary to ensure a return to the implementation of inflation targeting policy; to restore the economy, in particular the real sector, it is necessary to ease the requirements for regulating loaning activity, to introduce instruments for targeted stimulation of loaning activity of banking institutions.

Bank Regulation in the Selected Sub-Saharan African Countries: Dynamics and Trends

Abstract This paper discusses the dynamics of bank regulation in the Sub-Saharan African (SSA) region during the period before the 1990s and post 1990s and describes the trends in bank regulatory measures between 1995 and 2017 using the updated databases of the World Bank’s Bank Regulation and Supervision Surveys. Before the 1990s, bank regulation in the majority of SSA countries was inadequate and that led to multiple occurrences of banking crises. As a result, many countries introduced the financial sector reforms from the late 1980s that included major adjustments in the banking regulatory and supervisory frameworks. In both low-income and middle-income SSA economies, bank regulatory environment became more stringent over time, driven by increased restrictions on bank entry barriers and ownership structure, as well as the introduction of macroprudential policies in the case of the former, while in the case of the latter, it was influenced by more restrictions on bank ownership structure and capital regulation requirements, as well as the adoption of macroprudential policies. Overall, the bank regulatory environment was slightly more stringent in middle-income than in low-income SSA countries over the period under review.