Credit Crunch Research Articles

Dynamic Asset-Backed Security Design

Abstract Borrowers obtain liquidity by issuing securities backed by the current period payoff and resale price of a long-lived collateral asset, and they are privately informed about the payoff distribution. Asset price can be self-fulfilling: a higher asset price lowers adverse selection and allows borrowers to raise greater funding, which makes the asset more valuable, leading to multiple equilibria. Optimal security design eliminates multiple equilibria, improves welfare, and can be implemented as a repo contract. Persistent adverse selection lowers debt funding, generates volatility in asset prices, and exacerbates credit crunches. The theory demonstrates the role of asset-backed securities on stability of market-based financial systems.

Stability and Bifurcations in Banks and Small Enterprises—A Three-Dimensional Continuous-Time Dynamical System

Here, we discuss a three-dimensional continuous-time Lotka–Volterra dynamical system, which describes the role of government in interactions with banks and small enterprises. In Italy, during the COVID-19 emergency, the main objective of government economic intervention was to maintain the proper operation of the bank–enterprise system. We also review the effectiveness of measures introduced in response to the COVID-19 pandemic lockdowns to avoid a further credit crunch. By applying bifurcation theory to the system, we were able to produce evidence of the existence of Hopf and zero-Hopf bifurcating periodic solutions from a saddle focus in a special region of the parameter space, and we performed a numerical analysis.

ECB unconventional monetary policy and SME access to finance

Small- and medium-sized enterprises (SMEs) account for two-thirds of employment in the euro area which makes them a priority for the transmission of monetary policy to the real economy. SMEs in Europe experienced a credit crunch following the sovereign debt crisis. Over the period 2014–2019, the European Central Bank (ECB) engaged in unconventional monetary policy (UMP) to restore funding conditions in the euro area, to support stronger economic growth and higher inflation. We use the ECB/EC Survey on the Access to Finance of Enterprises to examine the relationship between monetary policy and SME access to finance in countries that were most affected by the crisis as follows: Greece, Ireland, Italy, Portugal and Spain. We show that the implementation of UMP increases the probability that firms with higher debt-to-assets ratio remain credit constrained in stressed countries, although this effect becomes insignificant in non-stressed countries. Our findings suggest that monetary policy is transmitted unevenly to leveraged SMEs across jurisdictions. Additionally, we find little evidence that risky firms are credit constrained during periods of UMP, when risk is measured from the firms’ own viewpoint. However, our heterogenous analysis shows that smaller and younger firms—which are also considered to be risky—remain credit constrained over this period. Policy should ensure that UMP trickles down to SMEs regardless of their size, age or location. Tweetable line: Leveraged SMEs in stressed countries are more likely to remain credit constrained even when monetary policy is expansionary. Policy must do more to support small and young firms’ access to credit to facilitate higher investment and growth.

Financing innovation in agri-food industries: an analysis of the Italian micro, small and medium enterprises

PurposeThis work aims to investigate the current financial structure of Italian agri-food micro, small and medium enterprises (MSMEs) to understand how MSMEs face innovation challenges, which are also required to support sustainable development.Design/methodology/approachTo reach the goal, an empirical longitudinal analysis is performed on a sample of Italian agri-food firms. In detail, to highlight the changes in the use of financial sources between 2013 and 2019, a descriptive ratio analysis is carried out on the data extracted by the AIDA database. In addition, statistical analyses were performed, including t-tests and U Mann–Whitney. Finally, a fixed-effects model is created to analyse the panel data. To ensure homogeneity, the sub-sectors of production and transformation are separately considered.FindingsThe financial structure analysis shows an increase in the equity percentage in the funding sources, attributable to an attempt to compensate for the reduction of banks' funding. However, even though this change has not compromised firms' profitability, the undercapitalisation of companies is still present. Therefore, more equity investments are required to support the innovation process.Originality/valueThe value of the present research is to highlight the choice of using new alternative financing sources instead of traditional banks' credit to implement sustainable and innovative development Italian agri-food sector (AFS). This choice is forced by reducing finance from banks and other financial institutions because of the credit crunch. This issue is even more relevant, considering that MSMEs have structural financial problems but have to fulfil the mission of pursuing innovation in the same way as large companies. Therefore, this paper expands the literature on agri-food, delving into an issue typical of MSMEs and combining agri-food with the need for innovation.

Effect of Capital Adequacy Requirement on Profitability of Selected Banks Listed on Ghana Stock Exchange

The study assessed the effect of capital adequacy requirement on profitability of the Ghana Stock Exchange banks between 2013 and 2018. The analyses were based on the Ghana Stock Exchange secondary statistics. The analyzes specifically assessed trends in the capital adequacy ratios and Ghana Stock Exchange profitability of banks and determine the effect of capital Adequacy Ratio on profitability of listed banks. The study found that the banks' average Capital Adequacy Ratio was (Mean=17.21%) in the time. While the mean Return on Equity (Mean=25.46%) and the mean Return on Asset was found to be (Mean=3.05%). While the profitability was adverse and insignificantly affected by the Capital Adequacy Ratio, they were adverse and small in terms of the Return on Equity, while Capital Adequacy Ratio had a positive and important impact on the Return on Equity. Bank size did not have a major effect on Return on Equity and Return on Asset. For local banks, the mean Capital Adequacy Ratio for international banks was approximately the same. Therefore, the study suggested that businesses continue to operate, if not, to guarantee banks are able to cope with any 'credit crunch' economic recession. Banks can ensure that surplus capital is transformed into investment to maximize investment returns.

Capital ratios and bank portfolio allocation: revisiting the 1990s "Credit Crunch" with a Bayesian discrete choice approach

Capital ratios and bank portfolio allocation: revisiting the 1990s "Credit Crunch" with a Bayesian discrete choice approach

Macroeconomic Determinants of Credit Risk on the Example of Non-performing Loans

Abstract The primary goal of this article is to examine the principal macroeconomic factors influencing credit risk as assessed by the nonperforming loan ratio (hereinafter NPL ratio). Based on the results, the ratio of domestic credit to the private sector, Organization for Economic Cooperation and Development (OECD) membership with a negative correlation with NPLs while the unemployment rate and the ratio of public debt with a positive relation with NPLs were statistically significant. In addition, the correlation between the inflation rate and the depreciation of the home currency was proven. The research examines the effects of the 2008 credit crunch, which triggered the financial crisis. The sample comprises 106 countries for the period 2009–2019. The real GDP growth, unemployment rate, public debt ratio, domestic credit to private sector ratio, currency depreciation, inflation rate, and interest rate were analysed as macroeconomic factors. A dummy variable representing OECD membership has been included in the analysis. The estimations were performed using the ordinary least squares (OLS) method. This article contributes to the academic discourse on the panel data perspective with regard to non-performing loans, while the practical implications are beneficial for governments and international investors.

부동산 PF 시장 유동성 강화를 위한 금융정책

As financial markets and economic conditions are rapidly changing around the world and the domestic real estate market is turning into a recession, credit crunch and liquidity risks are expanding in the real estate PF market. Accordingly, in this study, a financial policy plan that can supply liquidity to the domestic real estate market and reduce the delay rate was proposed. First, in the case of using P-CBO, a plan to support desired funds through the issuance of new corporate bonds using corporate bonds of construction companies that are difficult to raise and refinance in the housing finance market as an underlying asset It is a plan to guarantee and purchase from government-run banks and finances. In addition, a plan was proposed to jointly invest by comprehensive financial investment companies and purchase ABCP directly with the funds. On the other hand, in the case of unsold housing utilization, the housing builder's financing plan for unsold housing was designed by dividing it into unsold housing after completion and unsold housing before completion.

Struggle for survival in credit crunch: The effect of interest rate deregulation in China

This study investigates how interest rate deregulation affects firms' financing choice between bank debt and public debt. Our analysis exploits China's 2013 bank interest rate floor deregulation as an exogenous shock to the supply of bank credit. Using a difference-in-difference design, we find that firms with higher default risk substitute away from bank loan and switch to public debt after the 2013 deregulation. However, this substitution to public debt is limited, leading to a dramatic decline in debt ratio. Our result also demonstrates that the effect on firms' public debt financing is more pronounced for firms with better information environments, suggesting that good information environment is an important prerequisite for making the switch. This switching, contradicting to traditional financing framework that high-risk firms prefer bank loans, inevitably is costly. Compared with low-risk firms, bonds issued by high-risk firms have significantly higher spreads, a higher likelihood of being secured, and a higher tendency of including an interest-adjusted clause. More importantly, we also document that high-risk firms subsequently improve their information transparency after the interest rate deregulation. Our findings highlight the role of interest rate deregulation in firms' financing choice and illustrate that firms incur high switching costs when their choice deviates from the optimal financing choice.

Why are credit-driven crises deep and long-lasting?

There is evidence that transitory credit market shocks produce permanent effects on GDP trend. The most notable example of this phenomenon is the break in trend GDP in the US following the Great Recession of 2008. While many papers deal with the consequences of credit disruptions at the firm level, to the best of our knowledge, ours is the first to propose a theory linking shocks to household borrowing capacity to trend GDP. We build a general equilibrium, endogenous growth model with credit in the household sector. Consumers face idiosyncratic liquidity shocks, and use credit to smooth consumption while financing capital investments that are illiquid. A credit crunch –even though totally transitory– produces a recession and a permanent downward effect on the level of GDP trend, of the type believed to have occurred in the Great Recession of 2008. The key driver responsible for this result is the interaction between the liquidity risks that households face and the illiquid nature of capital investments.

Permasalahan Credit Crunch Perbankan Syariah Di Indonesia Ditinjau Dari Tawhidi String Relation

This study aims to show the problem of the credit crunch in Islamic banking in Indonesia from the perspective of Tawhidi String Relation (TSR). This research is a literature review using library data. The study results show that the main problems that trigger the emergence of a credit crunch in Islamic banking in Indonesia are natural disasters and the lack of availability of Islamic banking capital. Religious values have become a concept and a reference for every Islamic banking activity in Indonesia, which is based on the Al-Quran and Hadith. This research can be used as a reference for increasing the productivity of Islamic banking in maintaining the stability of the national economy. Practically this research can be a basis that can be applied universally in achieving benefits for all people.

Evaluation of Islamic Finance Against the Odds of Credit Crunch in Nigeria

Evaluation of Islamic Finance Against the Odds of Credit Crunch in Nigeria

Cross-border interbank liquidity, crises, and monetary policy

We analyze how the Lehman and sovereign crises affect cross-border interbank liquidity, exploiting euro-area proprietary interbank data, crisis and monetary shocks, and loan terms to the same borrower during the same day by domestic versus foreign lenders. Crisis shocks reduce the supply of cross-border liquidity, with stronger volume than pricing effects. On the extensive margin, results suggest that the cross-border credit crunch is independent of borrower quality, while—on the intensive margin—riskier borrower banks suffer more. Moreover, the cross-border liquidity crunch is substantially stronger for term loans, and weaker for foreign lender banks that have a subsidiary in the same country than the borrower. Finally, nonstandard monetary policy improves interbank liquidity, but without fostering strong re-integration of cross-border interbank markets.

Heterogeneous Global Booms and Busts

We investigate the heterogeneous boom and bust patterns across countries that emerge as a result of global shocks. Our analysis sheds light on the emergence of core and periphery countries, and the joint determination of the depth of recessions and tightness of credit across countries. The model implies that interest rates are similar across core and periphery countries in booms, with larger credit and output growth in periphery countries. However, a common global shock that leads to a credit crunch across the globe gives rise to a sharper spike in interest rates and a deeper recession in periphery countries, while a credit flight to the core alleviates the adverse consequences in these countries. (JEL E21, E32, E43, E44, F44, G01, G15)

Determinants of Access to Formal Credit for the Micro, Small and Medium Enterprises in India: An Inter-regional Analysis

Micro, small and medium enterprises (MSMEs) are significant contributors to the country’s growth and development. With the immense contribution to the Indian economy, the sector is undergoing a severe credit crunch. Mainly, formal credit is a pressing challenge for MSMEs across the nation. The article examines the inter-regional variations in the determinants of formal credit access to the MSMEs in India. The 73rd round (2015–2016) of the National Sample Survey Organization (NSSO) on Unincorporated Non-agricultural Enterprises has been used for the analysis. The study executed a descriptive analysis to assess the credit distribution and applied a logit model to determine the predictors of access to formal credit in each region. Results from descriptive analysis highlight significant regional differences in accessing formal credit in India. The Southern region has more access to formal credit than the other regions. The Northeast, Central and North regions are laggard in accessing formal credit. Besides, the study highlights that the determinant factors at the n ational level are uneven across the regions. Based on the evidence, it emphasises the government to re-examine its measures and implement the regional-specific programmes to create a conducive environment for the MSMEs in accessing formal credit.

Credit Crunch and Downward Nominal Wage Rigidities

AbstractThrough the lens of a DSGE model, I find that financial shocks in conjunction with downward nominal wage rigidities (DNWR) are important features in explaining the degree of asymmetry that U.S. business cycles exhibit. Financial shocks are constructed as residuals of the borrowing constraint faced by firms in a similar fashion to Jermann and Quadrini (2012). The effects of these shocks on aggregate quantity variables are amplified by DNWR, especially during the global financial crisis. Moreover, my model explains a large part of the upward shift in the labor wedge that occurred during this recession.

The COVID-19 Pandemic Impact on Banking Sector

This paper aims to investigate the COVID-19 pandemic’s impact on the banking sector in Indonesia between 2011 and 2020. The study reveals that a credit crunch has transpired during the pandemic period. The result reveals that credit delivery decreased more during the pandemic than during the non-pandemic period. We demonstrate this effect in our examination of the pandemic’s impact on credit performance. We propose business matching to overcome this dilemma.

Banking proximity and firm performance. The role of small businesses, community banks and the credit cycle

ABSTRACT This article analyses the link between banking geography and firm performance, i.e. whether the proximity within banks and between banks and borrowers has a positive impact on firms’ Returns on Assets (ROA).Using a unique dataset of Italian manufacturing firms and banks from 2006 to 2011 and an instrumental variable approach to account for endogeneity, we investigate whether this effect increases with the presence of community banks and small businesses and whether the relationship changes over the credit boom and bust, which preceded and followed the Lehman Brothers collapse.We show that geographical proximity matters for firm performance especially when the presence of community banks is high and when considering small (micro) firms. During the credit boom, both functional distance and operational proximity seem to matter, whereas, during the credit crunch, operational proximity has a more relevant role compared to functional distance in becoming an important driver to increase firm’s performance.

Interbank liquidity risk transmission to large emerging markets in crisis periods

In this paper, we conduct two investigations regarding funding liquidity risk in large emerging economies: Brazil, Russia, India, China, and South Africa — BRICS. In the first, we track the relevance of monetary policy decisions originating in developed economies for interbank funding liquidity risk in BRICS economies during crisis periods by applying a time-varying parameter model in a Bayesian framework. The results indicate weak associations between interbank credit market and US monetary policy and market conditions. In contrast, the Federal Reserve's National Financial Conditions Index (NFCI) — a representative of the health of both real and financial sectors in the US — matters more. The temporal patterns of the results imply that key central banking decisions precede or coincide with low degrees of associations. In the second, we examine whether interbank credit crunch exerts an influence on market liquidity risk in BRICS economies using a Granger causality approach. The results reveal that interbank credit crunch depresses market liquidity in the corresponding domestic market and that the state of fear and credit market conditions in the US exert some influence in this regard. Overall, our findings hint at judicious market intervention and liquidity management by BRICS central banks.

Analisis Kebijakan Atasi Credit Crunch Bank Umum di Indonesia

<table width="614" border="1" cellspacing="0" cellpadding="0"><tbody><tr><td valign="top" width="409"><p class="Normal1">COVID-19 has been declared a pandemic by WHO on March 9, 2020 because the spread of Covid-19 has reached 118 countries, including Indonesia. This pandemic not only has an impact on the health crisis but also has an impact on the economic crisis, one of which is the banking financial sector. This is reflected in credit growth which tends to decline with the average credit growth of commercial banks only 0.09% from January 2020 to June 2021. The purpose of this study is to analyze policies to overcome the credit crunch at commercial banks in Indonesia. The method used in this study is a descriptive method with a literature review approach. Based on research, it is known that the policies that have been launched to reduce the credit crisis of Commercial Banks together with the recovery of economic recovery in Indonesia are countercyclical policies and integrated policies, both policies contain credit restructuring with long term loans, subsidies or reductions in interest rates, reduction of interest arrears as well as a reduction in arrears of principal and/or credit conversion and credit guarantees.The researcher recommends that the vaccination program must be realized immediately so that all communities can quickly obtain programs to encourage more optimal activities and the dissemination of health protocols for the prevention of Covid-19 needs to be continuously echoed so that they remain implemented, because these various policies cannot run optimally without the implementation of these programs.</p></td></tr></tbody></table>