Interest-bearing Deposits Research Articles

A Study the Investment Pattern of Teachers with Special Reference to Surat City

To invest successfully over a lifetime, one does not require a stratospheric IQ, unusual business insights, or seaside information. "What's needed is a sound intellectual framework for making a decision and the ability to keep emotions from corroding that framework," says Warren Buffet. The financial market offers a wide range of investments, which differ from each other in terms of profitability, risk, and waiting period. Savings is the amount that is left after spending. In banking, saving refers to saving short-term accounts or interest-bearing deposits with a bank or other financial institution. Saving generally implies low-risk preservation of money. The investment pattern is long-term, and investing one’s hard-earned money is a serious subject that can have a major impact on the investor's future wellbeing. In fact, everyone makes savings and investments. For any investor who invests money in various financial instruments, there will be varying degrees of risk involved. A study on the investment patterns of teachers, with a focus on Surat, is being conducted to assess the investment patterns of teachers and the level of investment awareness among them. The study also intends to investigate investors' patterns and motivations for investing, to identify the sources of information that investors prefer to gather prior to investing, and to investigate investor attitudes toward risks and associated returns associated with various investment avenues.For 1300 respondents, well-structured questionnaires were administered, and the information was collected. The respondent profile is basically the teaching community. Who were the data collected from using non-probability convenient sampling? The information gathered from the well-structured questionnaire was compiled, and a master table was created. Proceeding, analysis, and interpretation of the data were done with the use of various statistical tools and software.

Determinants of banks’ cost efficiency: a case study of selected commercial banks, Ethiopia

This study examines the determinants of cost efficiency commercial banks’ in Ethiopian using balanced panel data with a sample of 13 commercial banks over the period 2010-2017 by paying a translog stochastic cost frontier approach. The identification and selection of inputs and outputs variables was based on the intermediation approach. Accordingly, three input variables (cost of labor, cost of capital, and cost of fund) and two output variables (total loans and other earning assets) are used in the study. Furthermore, five banks specific and one macroeconomic variable are included to examine their effect on cost efficiency. So as to examine the effect of determinant variables which are associated with banks efficiency, a single stage maximum likelihood estimation method is applied to stochastic frontier cost function. The empirical estimations were accomplished by Appling a single stage maximum likelihood function assimilated into Stata software. The estimation is based on conditional mean model concepts. The finding shows that from bank specific factors, return on assets (ROA), and intermediation ratio have positive and significant for intermediation (IR) and insignificant for ROA with cost inefficiency. On the other hand, Bank size (lnTA), Credit risk (CR) and capital adequacy ratio (CAR) have a significant negative coefficient with cost inefficiency. GDP also has negative but insignificant with inefficiency. Therefore, banks are recommended to improve and sustain their efficiency by maintaining available proportion of capital adequacy ratio and attract high value, low interest-bearing demand deposits.

Net Interest Margins of Banks in India

Net interest margin (NIM) is the raison d’être of banking. It is an important measure of efficacy of the banking sector. At the system level, it is indicative of the cost of financial intermediation, health of the banking sector and its pricing power. In recent years, the Indian banking sector has experienced a major metamorphosis, with increasing competition and changing norms of liquidity, income recognition and capital. The end of regulatory forbearance and asset quality review (AQR) unearthed significant non-performing assets. This article traces the influence of various factors on the NIM, using bank-level data for 42 Indian banks over 25 quarters from March 2011 to March 2017. The study employs a dynamic panel generalised method of moments (GMM) framework to trace the impact of three distinct set of factors in setting banks’ NIMs: bank-level factors (like the share of low interest-bearing deposits held, the extent of gross non-performing assets [GNPAs], the capital-to-risk weighted assets ratio [CRAR], size of the loan book, operating costs and lending rates); system-level factors such as the monetary policy rate, credit growth and yields on government securities and macro-variables such as GDP growth and inflation. The results indicate that the main determinants of NIMs are banks’ CRAR levels, the proportion of current account and savings account deposits (CASA) to total deposits, operating costs and size of the loan book. Macro-factors like the growth of the economy and repo rate have a positive influence on the NIM. JEL Classification: C23, E43, G21

Profit-sharing investment accounts in islamic banks or mutualization, accounting perspective

PurposeIslamic banks use Mudarabah contract to replace the interest-bearing deposits with profit-sharing investment accounts. The purpose of this paper is to explore the challenges and problems associated with the employment of Mudarabah contract by Islamic banks.Design/methodology/approachThe study critically analyzes the Mudarabah contract used by Islamic banks. It reviews the evolution of the contract from its traditional type to more complicated types such as compound, unrestricted, commingled and continuous Mudarabah. The paper investigates the problems that have emerged from implementing such types in current business settings.FindingsThe paper proves that implementing the Mudarabah contract by banks imposes several problems among which are the following: difficulty in the determination of total profit resulting from Mudarabah and in allocating this profit to the multiple parties involved in Mudarabah; usage of reserves to cater against future losses may undermine the concept of Mudarabah profit-loss sharing and lead to earnings management; corporate governance is also a major problem in Mudarabah contract, as the depositors are exposed to risks but have no governance rights; and Mudarabah may also lessen the fair presentation of financial reporting.Research limitations/implicationsThe paper examines the evolving Mudarabah contract and its implementation challenges, based on available literature (no empirical analysis was conducted).Practical implicationsThe implications are significant for the future development of Islamic contracts and Islamic accounting treatments.Originality/valueMany studies explored the Mudarabah contract from a Shariah or law perspective. However, this paper investigates the Mudarabah contract with a focus on the implication on accounting and financial reporting because of the lack of studies in this area. Furthermore, it demonstrates the persistent flaws in the Mudarabah contract, and it proposes a new model for mobilizing funds, i.e. mutual fund.

How Monetary Policy Changes Bank Liability Structure and Funding Cost

U.S. banks obtain most of their funding from a combination of zero-interest deposits and interest-bearing deposits. Using local demographic variations as instruments for banks' liability composition, I show that when monetary policy tightens, banks with a larger proportion of zero-interest deposits on their balance sheet experience larger increases in their interest-bearing deposit rate. This happens because tight monetary policy reduces the quantity of zero-interest deposits available to banks. Banks react issuing more interest-bearing deposits, but pay an interest rate that increases with the quantity being borrowed. This new evidence supports the existence of the bank lending channel of monetary policy.

How Monetary Policy Changes Bank Liability Structure and Funding Cost

U.S. banks obtain most of their funding from a combination of zero-interest deposits and interest-bearing deposits. Using local demographic variations as instruments for banks’ liability composition, I show that when monetary policy tightens, banks with a larger proportion of zero-interest deposits on their balance sheet experience larger increases in their interest-bearing deposit rate. This happens because tight monetary policy reduces the quantity of zero-interest deposits available to banks. Banks react issuing more interest-bearing deposits, but pay an interest rate that increases with the quantity being borrowed. This new evidence supports the existence of the bank lending channel of monetary policy.

Profit And Loss Sharing As an Offshoot for Bank Stability: A Comparative Analysis

The global crisis in 2007 has revived interest in the Islamic banking and finance industry. The profit and loss sharing (mudaraba and musharaka) attributes of Islamic banking and finance have shielded Islamic banks from the impact of a crisis. In other words, the Islamic banking system is stable by virtue of the profit and loss sharing principle. The relative stability of the Islamic banking model can also be deduced from the fact that the Islamic banking and finance system is effectively under the control of the authority of the central bank, which is not easily influenced by non-policy factors. This study concludes that a case for the superiority of Islamic banking has been made for example in Tunisia and Iran, where separate Islamic or interest-free counters were opened in all branches of commercial banks along with traditional or westernised interest-based banks. The substitution of western interest-bearing deposits by profit and loss sharing deposits connotes to the stability of the Islamic finance and banking system. The Islamic profit and loss sharing system does have merit and deserves attention from academics and policy-makers alike, especially in view of the financial crises and rampant bank failures.

The structure, regulation and supervision of Islamic banks

A key feature of Islamic banks is their use of Unrestricted Profit Sharing (and Loss Bearing) Investment Accounts (UPSIA) in place of conventional interest-bearing deposits. In the first place, this raises a supervisory issue: UPSIA are, strictly speaking, investment (that is, capital market) products, rather than banking products. Hence, they call for a regulatory and supervisory approach that differs from that applied to banking deposits by banking regulators and supervisors. In addition, UPSIA give rise to particular problems as regards both the regulation and supervision of capital adequacy, and also corporate governance. Moreover, UPSIA do not meet the requirements of the banking regulations in North American and Western European jurisdictions, and this constitutes a significant barrier to their development in those jurisdictions. In the second place, this characteristic of Islamic banks raises a structural issue: if UPSIA were used to raise funds, not by Islamic banks themselves, but by fund management companies associated with them (for example, as subsidiaries or as fellow subsidiaries of a common parent), then not merely would the barrier just mentioned be removed, but the application to UPSIA of more appropriate regulatory and supervisory approaches would be greatly facilitated. Last but not least, the rights of UPSIA holders in a winding-up of an Islamic bank need to be clarified, as (absent misconduct or negligence) they are not creditors of the bank but have an ownership claim to some of the assets held by it. This article sets out in more detail an approach that would permit these benefits to be achieved. In doing so, we highlight the challenges faced by the Islamic Financial Services Board in developing appropriate regulatory and supervisory regimens for capital adequacy and corporate governance in Islamic banks.

AN ORDERING OF MEASURES OF THE WELFARE COST OF INFLATION IN ECONOMIES WITH INTEREST-BEARING DEPOSITS

This paper builds on Lucas [Econometrica 68 (2000), 247–274] and on Cysne [Journal of Money, Credit and Banking 35 (2003), 221–238] to derive and order six alternative measures of the welfare costs of inflation (five of them already existing in the literature) for any vector of opportunity costs. We provide examples and closed-form solutions for each welfare measure based both on log–log and on semilog money demands, whenever possible in terms of elementary functions. Estimates of the maximum relative error a researcher can incur when using any of these measures are given. Everything is done for economies with or without interest-bearing deposits.

Welfare costs of inflation when interest-bearing deposits are disregarded: A calculation of the bias

Most estimates of the welfare costs of inflation are devised considering only noninterest-bearing assets, ignoring that since the 1980s technological innovations and new regulations have increased the liquidity of interest-bearing deposits. We investigate the resulting bias. Sufficient and necessary conditions on its sign are presented, along with closed-form expressions for its magnitude. Two examples dealing with bidimensional bilogarithmic money demands show that disregarding interest-bearing monies may lead to a non-negligible overestimation of the welfare costs of inflation. An intuitive explanation is that such assets may partially make up for the decreased demand of noninterest-bearing assets due to higher inflation.

Profit-sharing investment accounts in Islamic banks: Regulatory problems and possible solutions

As interest-bearing deposits are not permitted by the rules and principles of the Islamic Shari’ah, Islamic banks typically raise deposits in the form of profit-sharing investment accounts. These accounts differ from conventional deposits not merely by virtue of the profit-sharing nature of the returns they offer, but also because the contact between the depositors and the bank is not a debt contract, and the deposits are in consequence not ‘capital certain’ (that is, the depositors are required to accept negative returns or losses). This latter characteristic leads to serious regulatory problems in jurisdictions where bank deposits are required by legal definition to be ‘capital certain’. More generally, the presence of such ‘puttable instruments’ in the capital structure of Islamic banks leads to complications in assessing their capital adequacy. In addition, the fact that the profit-sharing investment account holders are a type of equity investor without the governance rights of either creditors or shareholders raises a major problem of supervision. This article explains these problems in further detail, and proposes a solution in the form of a structural distinction between the Islamic bank in the narrow sense on the one hand, and the entity that manages the profit-sharing investment accounts on the other hand.

Dynamic credit relationships in general equilibrium

We construct a general equilibrium model with private information in which borrowers and lenders enter into long-term dynamic credit relationships. Each new generation of ex ante identical individuals is divided in equilibrium into workers and entrepreneurs. Workers save through financial intermediaries in the form of interest-bearing deposits and supply labor to entrepreneurs in a competitive labor market. Entrepreneurs borrow from financial intermediaries to finance projects which produce privately observed sequences of random returns. Each financial intermediary holds deposits from a large number of workers and operates a portfolio of dynamic contracts with different credit positions. We calibrate the model to the U.S. economy and find that dynamic contracting is very effective at mitigating the effects of private information. Moreover, restricting borrowers and lenders to use static (one-period) contracts with a costly monitoring technology has adverse effects both on the level of aggregate economic activity and on individual welfare unless monitoring costs are very small. Finally, the optimal provision of intertemporal incentives leads to increasing consumption inequality over time within generational cohorts as in U.S. data.

WELFARE COST OF INFLATION IN A GENERAL EQUILIBRIUM MODEL WITH CURRENCY AND INTEREST-BEARING DEPOSITS

The user cost of non-interest bearing currency is the nominal interest rate. Increases in inflation lead to decreased real currency held in steady state, which imposes a welfare cost. Lucas (2000) estimates this welfare cost in a model with a single non-interest bearing monetary asset. Lucas suggests applying monetary aggregation/index number theory to generalize the model to contain interest-bearing deposits. We solve a general equilibrium model with three agents: a household, a goods producing firm, and a financial firm. We assume that currency and deposits provide utility to the household and form a weakly separable group in the utility function. We use monetary aggregation and index number methods to calibrate the model and estimate the welfare cost of inflation. We compare these estimates to welfare cost estimates from a model in which all money is non-interest bearing currency. We find that the welfare cost of inflation is substantially lower in the models with interest-bearing deposits than in models with only non-interest bearing currency. We also find that the welfare cost of inflation is positively related to the own price elasticity of aggregate money demand.

Welfare Costs of Inflation and Interest-Bearing Money

This work extends the Lucas' analysis of the welfare cost of inflation to an economy with interest-bearing deposits. Lower and upper bounds to Lucas' measure of the welfare cost of inflation are also provided. The upper bound is shown to lie between Lucas' measure of the welfare cost of inflation and the area under the money-demand curve. STARTING WITH MARTIN BAILEY in 1956, the literature on welfare costs of inflation has recently been enriched by contributions, among others, by Lucas (1993, 2000), Dotsey and Ireland (1996), and Gillman (1993, 1995). It remains yet to adequately integrate the banking sector in this process. This work extends Lucas' analysis of the welfare cost of inflation developed in the McCallumGoodfriend (1987) framework to an economy with interest-bearing deposits. Lower and upper bounds to Lucas' measure of the welfare cost of inflation are also provided. The upper bound is shown to lie between Lucas' measure and the area under the money-demand curve which characterizes Bailey's method (1956) for calculating the welfare cost of inflation.

Demutualization and the Remapping of Financial Landscapes

Over the past two decades, financial landscapes everywhere have undergone intense change. Together, deregulation, technological innovation and globalization have transformed financial markets, institutions and products, creating new geographies of money in the process. This paper examines one particular aspect of this remapping, namely the demutualization of building societies in the United Kingdom. Born out of the friendly society movement of the nineteenth century, building societies have traditionally been quintessentially local, non‐profit organizations taking interest‐bearing deposits from, and providing long‐term mortgage loans to, their local members. Their mutual status derived from this ‘ownership by members’. As the British Conservative governments of the 1980s pushed through their programme of financial deregulation, so the opportunities were created for the building societies to ‘demutualize’, that is to abandon their traditional ‘member‐owner’ status, to float themselves on the Stock Market, and to convert to banks. Since 1989, five of the largest building societies (with assets rivalling those of the major banks) have demutualized. Our aim in this paper is to examine this demutualization process, its impacts and its tensions. In many ways it is an inherently geographical phenomenon, not only by virtue of the different membership geographies of the societies that have floated, but also because of its implications for the localized nature of the building society movement as a whole. Adopting an institutionalist perspective, we trace the regulatory and financial developments that created the opportunities for demutualization. We then move on to show how demutualization has shifted the ownership of the societies away from localized memberships to institutions based in London. By allocating free shares to their members, demutualization created a potentially important mechanism for spreading share‐ownership across the population and regions, but the evidence suggests that this impact has been more limited than perhaps expected, and that significant numbers of shares have been transferred into London‐based financial institutions. The paper concludes by tracing the potentially destabilizing impact of demutualization on the remainder of the local building society movement.

Monetary base growth, deposit growth and inflation in the postwar United States

In this article, we present a study of the effects of monetary-base growth and deposit growth on inflation in the postwar United States. The motivation for the study is the need to develop a body of evidence useful in evaluating two competing hypotheses about the role of bank transactions deposits in the inflation process. We denote these two hypotheses as the monetary-base hypothesis and the transactions-aggregate hypothesis. The monetary-base hypothesis emphasizes the sum of currency and reserves as the crucial monetary variable in the determination of the price level and inflation. The transactions aggregate hypothesis focuses on transactions media, which would include some classes of bank deposits, as the relevant monetary variables for fixing nominal prices and inflation. Because inflation is a key macroeconomic variable and deposit creation is a major aspect of banking activity, evidence on these hypotheses is important in understanding whether there is a special relation between banking and macroeconomics. In this article, we examine the impact of monetary-base growth and deposit growth on inflation in the postWorld War II United States. The most significant and stable empirical relationship is between monetary base growth and inflation. However, we also find that non-interestbearing demand deposit growth has an impact on inflation. The relation between demand deposit growth and inflation was strongest during the Bretton Woods era but appafrently remains significant in the postBretton Woods period. Our results indicate that the newer interest-bearing transactions deposits in MI, as well as in M2-category deposits, play no role in inflation. * We thank Leland Yeager, seminar participants at the American Enterprise Institute, and the Federal Reserve Bank of Kansas City for suggestions on an earlierversion of this article. Parts of this research project were undertaken while Boschen was Visiting Scholar at the Federal Reserve Bank of Kansas City. We have benefited considerably from the suggestions of two anonymous referees.

Portfolio Redistribution Impacts within the Narrow Monetary Aggregate

A number of important monetary and financial changes occurred in the 1980s. A rising question among monetary economists is whether the character of M1 has changed substantially as a result. In particular, a frequent contention is that interest-bearing checkable deposits behave as a savings-type asset, thus subjecting M1 to portfolio redistribution effects in the modern era. This research examines the elasticities of substitution for a variety of financial assets pre- and post-1980. Results indicate that M1 subcomponents do show significant substitution with savings-type assets. However, the portfolio redistribution impacts are not confined to the interest-bearing checkable deposits. Further, results indicate that this behavior is not unique to the 1980s. Copyright 1992 by Ohio State University Press.

Monetary Base Growth, Deposit Growth, and Inflation in the Postwar United States

In this article, the authors examine the impact of monetary-base growth on inflation in the post-World War II United States. The most significant and stable empirical relationship is between monetary base growth and inflation. However, the authors also find that non-interest-bearing demand deposit growth has an impact on inflation. The relation between demand deposit growth and inflation was strongest during the Bretton Woods era, but apparently remains significant in the post-Bretton Woods period. The authors' results indicate that newer interest-bearing transactions deposits in M1, as well as in M2-category deposits, play no role in inflation. Copyright 1991 by University of Chicago Press.

Twenty Years of the Floating Debt

Although the Treasury were empowered as early as I877 to finance the temporary requirements of the Consolidated Fund by the sale at a discount of Treasury bills of up to twelve months' currency, and although in I902 the power was extended to cover the requirements of the Supply Services, the use made of these powers, up to August I914, was, by post-war standards, exceedingly small. The highest total of Treasury bills recorded in those years seems to have been r4I Mn. in April I9Io, consisting of £36.7 Mn. issued by tender to the market and l4.3 Mn. issued direct to government departments. In July 1914, the total outstanding was £I5.5 Mn., of which only £6 Mn. had been issued by tender. During the war the Floating Debt expanded enormously. On January 4th, I919, it stood at £I,545 Mn., of which £1,o98 Mn. was in Treasury bills and 4447 Mn. in Ways and Means Advances. The very high figure for Ways and Means Advances seems to have been due to two causes. In the first place a system had grown up during the war whereby the banks and others were encouraged to place their surplus cash reserves on interest-bearing deposit account with the Bank of England, which re-lent them to the Treasury on Ways and Means Advances. These interest-bearing deposits, which in January 1919 may have amounted to as much as £200 Mn. or £250 Mn., were not mentioned in the Bank of England statements, and the obvious emergence of large surplus cash reserves was therefore prevented. They could, however, be converted very rapidly into non-interest bearing