Purchase Program Research Articles

Reducing Climate Transition Risk in Central Banks’ Asset Purchasing Programs

In this paper we analyze whether and how a central bank can pursue the objective to lower its exposure to climate-related financial risks in its asset purchase programs while meeting the criteria that define the eligible universe of assets, including market neutrality. Despite focusing on the analysis of European Central Bank (ECB)’s asset purchase program and its exposure to climate transition risk, our approach and results can be applied to other central banks. We first prove analytically that under a strict market neutrality principle, the ECB’s corporate bonds’ portfolio is completely determined and climate transition risk cannot be reduced. We then show that under a weaker market neutrality principle, it is possible to construct a portfolio with lower exposure to climate transition risk than the current one. We provide a simple algorithm to produce examples of such portfolios. Our results contribute to support central banks in the assessment of their exposure to climate-related financial risks, and in the introduction of climate change considerations in their assets purchase programs.

What Future for the Eurozone After Karlsruhe?

The paper analyzes the decision of the German Federal Constitutional Court rendered on 5 May2020 (2 BvR 859/15,2 BvR 980/16,2 BvR2006/15,2 BvR 1651/15), wereby the latter heavily criticized the democratic legitimacy of the Public Sector Purchase Program of the European Central Bank (aimed, by purchasing negotiable debt securities issued by governments, public agencies and international institutions located in the euro area, to support the economy of the Member States and to increase the eurozone's inflation rate up to 2%), de facto disapplying the judgment of the CGEU of 11 December 2018, by which that Program had been instead previously validated. The author places the decision in the context of the long-standing and conflicting relations, on the one hand, between Member States and European institutions and, on the other hand, between national constitutional courts and the Court of Justice of the European Union, outlining the possible repercussions of the decision on a legal, economic, political and institutional level and, ultimately, on the very survival of the eurozone.

Sustainable Economic Growth Support through Credit Transmission Channel and Financial Stability: In the Context of the COVID-19 Pandemic

All countries worldwide faced the COVID-19 pandemic and had to take actions to lower the economic shock. Financial authorities play an especially significant role in economics and can help to manage the negative consequences. This article focuses on the European central bank monetary policy and actions taken for COVID-19 risk management. This research aims to identify the significant factors influencing the long-term loans for enterprises’ credit conditions in a forward-looking approach and determine the impact of the spread of COVID-19 pandemic on banking sector credit risk, financial distress, lending growth, and financial soundness indicators. This research is focused on the credit transmission channel and the role of the Pandemic Emergency Purchase Program in different countries of the euro area. To reach the main goal, panel data regression models are used. Our findings showed that the banks’ risk tolerance is a principal factor influencing long-term loan credit standards. We also identified that the spread of the COVID-19 pandemic has a statistically significant negative effect on banking sector credit risk, financial distress, banking sector profitability, and solvency. Furthermore, after analyzing the euro area banking sector, we found that liquidity increased. Hence, it means that banks have enough funds to support sustainable economic growth, but on the other side, commercial banks do not want to take credit risk because of their risk tolerance. Our research findings show the mixed effect of the COVID-19 pandemic on financial stability: while the overall financial distress decreased and banking sector liquidity increased, the profitability and solvency decreased some extent.

Race to the Top of the Hospital Value-Based Purchasing Program.

Medicare's Hospital Valued-Based Purchasing (HVBP) program measures hospitals' total performance score (TPS); its measurement strategies have changed regularly since its rollout in 2013. Because the program influences care delivery, it is important to examine how the policy has changed hospitals' behavior and how it may inform future policies. The purpose of this study was to assess the relationship between hospitals' performance on TPS annually from 2013 to 2018 and organizational characteristics. Using the HVBP TPS from 2013 to 2018 and associated hospital characteristics-hospital size, teaching hospital status, system membership, ownership type, urban/rural location, average percentages of patients from Medicare and Medicaid, operating margins, percentages of inpatient revenue as a proportion of total revenue, and case mix index-we conducted a retrospective cohort study of all U.S. hospitals participating in the HVBP program. Regression and panel analyses found that organizations that were expected to have robust and rigid resources were unable to score in the superior category consistently. In addition, organizations were unable to consistently perform positively over time because of changes in the HVBP program measurement and the required organizational responses. Policymakers should consider the ability of organizations to respond to changes to the HVBP program. Likewise, healthcare managers, particularly those in larger organizations, should seek to remove bureaucracy or allow for greater resource slack to meet these changes.

Climate change uncertainty and central bank risk management

The drastic change in the Earth’s climate is a key concern for central bank risk managers. The consequences of climate change for the economy are harmful and potentially far-reaching. Central banks are exposed to climate change through their asset purchase programmes and credit operations and via the impact of climate change on the economy in general. Risk management in this case is challenging and complex because climate change is surrounded by fundamental uncertainty. Given this fundamental uncertainty, risk managers can however rely on the precautionary principle for practical purposes. This principle aims to anticipate and minimise the potential impact of serious or irreversible events under conditions of uncertainty. Stronger risk mitigating measures taken at an early stage serve as a hedge against the cost of enduring temporary catastrophes or draconian interventions at a later stage. This paper discusses the fundamental uncertainty of climate change and offers some recommendations for the identification, assessment, mitigation and disclosure of climate change uncertainty in central bank risk management. These recommendations are however equally relevant for commercial banks and institutional investors.

PRACTITIONER APPLICATION: Race to the Top of the Hospital Value-Based Purchasing Program.

PRACTITIONER APPLICATION: Race to the Top of the Hospital Value-Based Purchasing Program.

Impact of Government Bailout on Banks’ Cost of Equity: Additional Evidence from the Financial Bailout of 2008–2009

The Capital Purchase Program (CPP) was the first and most significant program under the Troubled Asset Relief Program (TARP) during 2008–2009 financial crisis. This study evaluates the effect of the CPP during this period on the cost of equity of 170 publicly listed banks in the United States that received funding. To control for the potential effects of endogeneity on our results, we use a propensity score matched sample of non-CPP banks. Using this approach, we document robust evidence that the liquidity provided by the government bailout reduced the cost of equity for recipient banks, especially for those banks that repaid their bailout funds in full. This decrease in the cost of equity is particularly significant for banks with high market-to-book ratios, low concentrations of institutional ownership, and those banks with at least one large blockholder. Our findings have important implications for the assessment of government bailout programs and the future regulation of financial institutions.

A regression discontinuity design for ordinal running variables: Evaluating central bank purchases of corporate bonds

Regression discontinuity (RD) is a widely used quasi-experimental design for causal inference. In the standard RD the assignment to treatment is determined by a continuous pretreatment variable (i.e., running variable) falling above or below a prefixed threshold. Recent applications increasingly feature ordered categorical or ordinal running variables which pose challenges to RD estimation due to the lack of a meaningful measure of distance. This paper proposes an RD approach for ordinal running variables under the local randomization framework. The proposal first estimates an ordered probit model for the ordinal running variable. The estimated probability of being assigned to treatment is then adopted as a latent continuous running variable and used to identify a covariate-balanced subsample around the threshold. Assuming local unconfoundedness of the treatment in the subsample, an estimate of the effect of the program is obtained by employing a weighted estimator of the average treatment effect. Two weighting estimators—overlap weights and ATT weights—as well as their augmented versions are considered. We apply the method to evaluate the causal effects of the corporate sector purchase programme (CSPP) of the European Central Bank which involves large-scale purchases of securities issued by corporations in the euro area. We find a statistically significant and negative effect of the CSPP on corporate bond spreads at issuance.

The Law and Norms of the European Central Bank as Sovereign Lender of Last Resort: Crystallising Endogenous Authority

Authority of the European Central Bank (the Bank) over its operational norms in the eyes of market actors – Exogenous and endogenous authority and legitimacy – The reconciliation by the Bank and the Court of Justice of the EU (the Court) of the pre-existing norm and political-economic reality with Article 123 TFEU – Sovereign lender of last resort – Eurozone Crisis – Outright Monetary Transactions (OMT) – Public Sector Purchase Programme (PSPP) – Pandemic Emergency Purchase Programme (PEPP)

Systemic risk and the COVID challenge in the european banking sector

This paper studies the systemic risk contribution of a set of large publicly traded European banks. Over a sample covering the last twenty years and three different crises, we find that all banks in our sample significantly contribute to systemic risk. Moreover, larger banks and banks with a business model more exposed to trading and financial market volatility, contribute more. In the shorter sample characterized by the Covid-19 shock, sovereign default risks significantly affected the systemic risk contribution of all banks. However, the ECB announcement of the Pandemic Emergency Purchasing Programme restored calm in the European banking sector.

Euro Area Banking and Monetary Policy Shocks in the QE Era: A Structural Credit Risk and Vector-autoregression Approach

This paper assesses the effects of monetary policy shocks on the macroeconomy and the euro area banking sector after the global financial crisis. Financial risk-return indicators of the banking sector based on a compound option-based structural credit risk model are embedded in a large macro-financial quarterly database covering the period 2008Q4-2019Q4. A SFAVAR identifies and estimates the shocks’ responses relating them to the endogenous build-up of banks’ vulnerabilities. The study finds that unconventional monetary policy, in particular the Asset Purchase Program of the European Central Bank, seems to have been more successful than conventional monetary policy in raising output and inflation. The desired boost to bank lending has been muted and loan cyclicality has varied across countries and loan types. The performance of the banking sector following monetary policy shocks can be characterized by a drop in expected ROE and ROA, a relaxation of lending conditions and increased correlation between banks’ assets return and the market return, a mechanism pointing to enhanced risk-taking. While banks’ probabilities of default fall following monetary policy shocks, financial leverage and the price of risk increase. Banks’ net worth rises via higher market capitalization and implied assets value together with lower volatility, albeit often incurring more debt. Risk-taking in the banking sector, such as the one observed in the run-up to the global financial crisis, may pose a risk to financial stability, especially if its effects on banks’ vulnerability spread to systemic risk. The endogenous build-up of macro-financial vulnerabilities may need to become part of monetary policymaking.

Comprehensive Monetary Easing In The Eurozone: Lessons Learnt From Japan

The European Central Bank’s (ECB) unconventional monetary policy has so far failed to deliver the much-anticipated results. In October 2019, the euro area’s (EA-19) HICP-inflation fell to a three-year low of just 0.7% year-over-year (y/y), thus being far below the ECB’s goal of “below, but close to 2.00% over the medium term”. By November 2019, HICP-inflation had recovered to a modest 1.0% (y/y) with seasonally-adjusted Eurozone GDP growing at a disappointing 1.2% (y/y) in Q3 2019 compared with the same quarter of the previous year (Eurostat, 2019). Inevitably, these developments raise the question to what extent the ECB might eventually consider extending its Quantitative Easing (QE) program, i.e. its €2.6tn asset purchase programs (APP) beyond the ongoing €20bn-per-month purchase of fixed income securities. Any further easing could, for example, foresee an enhancement of the securities purchased to inter alia include shares of stock. In contrast to widely held beliefs, this by no means were an entirely unprecedented phenomenon, but corresponded to measures (so-called comprehensive monetary easing, CME) adopted by the Bank of Japan (BoJ) as early as 2010 (Bank of Japan, 2010a). Notwithstanding the BoJ’s CME, however, HICP-inflation in Japan fell to 0.0% (y/y) in December 2019, the latest date for which data were available, which caused annual HICP-inflation for the full year to drop to only 0.8% (y/y). Based on the experiences gained in Japan, and notwithstanding a potential revision of the ECB’s inflation target to a 1.5% to 2.5% range, this contribution will analyse the extent to which an expansion of the ECB’s set of hitherto employed unconventional monetary policies through CME could sustainably stimulate economic growth - and inflation - in the euro area. Preliminary results suggest a rather muted impact.

Spillover Effects of Sovereign Bond Purchases in the Euro Area

This paper investigates cross-border spillover effects from the Eurosystem’s Public Sector Purchase Programme (PSPP) on euro area government bond yields. We distinguish between the direct effects of domestic bond purchases by national central banks and the indirect effects from bond purchases by national central banks in other euro area countries over the period March 2015 - December 2018. The results reveal substantial spillover effects across the euro area, providing evidence for strong arbitrage within the euro area. These spillover effects are particularly large for long-term bonds and for bonds issued by non-core countries. The larger impact of spillovers in these cases can be explained by investors rebalancing towards higher yielding government bonds. In addition, purchases under PSPP had their largest impact on bond yields in 2015.

Supporting Students: OER and Textbook Affordability Initiatives at a Mid-Sized University

ABSTRACT In 2018, the Alabama Commission on Higher Education (ACHE) kicked off a statewide program to increase awareness and adoption of Open Educational Resources (OER) at colleges and universities. Spurred by the efforts of ACHE, the University of North Alabama committed to OER and textbook affordability programs and included OER adoption as a key aspiration in their 2019–2024 strategic plan, Roaring with Excellence. With support from the president and provost of the university, Collier Library adopted strategic purchasing initiatives, including database purchases to support specific courses as well as purchasing reserve copies of textbooks for high-enrollment, required classes. In addition, the scholarly communications librarian became a founding member of the OER working group on campus. This group’s mission is to direct efforts for increasing faculty awareness and adoption of OER. This presentation will discuss the structure of each of these programs from initial idea to implementation. Included will be discussions of assessment of faculty and student awareness, development of an OER stipend program, starting a textbook purchasing program, promotion of efforts, funding, and future goals.

Ein Schuldenerlass als Ende mit Schrecken?

Abstract The rising debt-to-GDP ratios of the eurozone member states result not least from the coronavirus crisis. Without external support, especially with regard to Italy, but also for other Mediterranean states, access to the capital market could be seriously threatened in the medium run. The recovery fund ‘Next Generation EU’ likely directs the fundamental structures of the European Union (EU) towards a fiscal union with considerable transfer elements, while the Pandemic Emergency Purchase Programme (PEPP), which is declared as a monetary policy instrument, is even discussed as a violation of the prohibition of monetary financing. As an alternative, this contribution analyses a debt relief by the European System of Central Banks (ESCB), implemented via an EU debt agency. This construction would avoid a negative equity position of the central banks and also enable a legal integration into the EU system. The question remains: What would be the consequences of such a non-recurring step?

The Assumption that the Relationship between Monetary Easing and Inflation is Positive is Spurious

The ECB stands by their monetary policy strategy of extremely low interest rates and large asset purchase programs in order to achieve their target inflation. However, using existing research, this paper demonstrates the decoupling of the relationship between monetary policy and inflation. There are two complementary theories which explain this. First, the negative interest rates drive people to save (or invest) rather than spend the money created through the asset purchase programs. The second theory links inflation with trends like globalization and demographics – a larger supply in labour (as we have seen in the last three decades) drives wages and hence inflation down. The lack of clear scientific and practical evidence for using a loose monetary policy to reach a specific inflation target raises the question of whether there is another motive behind the ECB’s current, ongoing strategy.

Cannons over the EU legal order: The decision of the BVerfG (5 May 2020) in the Weiss case

The Weiss affair, culminating in the BVerfG ruling of 5 May 2020 ( Weiss II), marks a break-up point in the long-standing dialogue between the BVerfG and the CJEU. The judges in Karlsruhe refused to follow the decision rendered by the CJEU in a preliminary ruling ( Weiss I) and ordered EU institutions to provide further clarifications on the proportionality assessment of the Public Sector Purchase Programme. This paper claims that the principles applied by the BVerfG in Weiss I are quite similar to those employed in the Gauweiler and Landeskreditbank-Banking Union cases. Considering that background, it will be argued that the construction of the principles employed by the BVerfG for the judicial review of EU acts did not undergo dramatic changes over time. The different outcome of Weiss II is due to the fact that, according to the BVerfG, insufficient elements of explanation and justification were provided by the ECB and the CJEU. Therefore, the central problem of Weiss II ends up being a procedural question of allegedly insufficient statements of reasons. From Gauweiler to Weiss II, one also sees the development of the standards for the judicial review of the ECB’s decisions, in the fields of both monetary policy and banking supervision.

How Do Banks Use Bailout Money? Optimal Capital Structure, New Equity, and the TARP

Between October 28, 2008 and June 30, 2009 over 600 banks and bank holding companies accepted money from the United States government in exchange for preferred shares and warrants. Based on a matched sample of banks participating and not participating in this Capital Purchase Program (CPP), of each dollar of new government equity, on average participants levered roughly 13 cents to support increased lending while they used roughly 60 cents to increase their regulatory capital ratios. Over the previous business cycle, 2000–2008, allocation of new capital to support lending was higher than in 2008–2009 by nearly 30 cents per dollar of new capital. Moreover, in the previous downturn, 2000–2001, allocation to new lending was higher by an even greater amount. Banks’ exposure to past-due loans, which was higher in 2008 than in 2000 or in any other sample year, negatively predicts allocation of new capital to new lending. Characteristics of CPP participants suggest they were of two types: those with high commitments and opportunities for new lending, and those with exposures to certain troubled loan classes. Banks with high leverage and high expected costs of regulatory downgrades also were more likely participants. All of these results are consistent with banks having an optimal, target capital structure based on some form of tradeoff theory.

Evaluating the robustness of the CMS Hospital Value-Based Purchasing measurement system.

The Hospital Value-Based Purchasing Program (HVBP) is a pay for performance system that impacts traditional Medicare fee-for-service payments to hospitals through rewards and penalties. To explore variation in overall and individual-hospital total performance score (TPS) and embedded domains for hospitals during 2014-2018. Hospital data were retrieved from the publicly available HOSArchive dataset. Distribution of annual TPS and HVBP domain scores for 2014-2018 was evaluated using descriptive statistics. Transitional probabilities were analyzed to evaluate annual movement in the TPS ranking for outlier hospitals in the Top and Bottom 5%. TPS scores are positively skewed while the distribution of domain scores vary with patient experience, (clinical) outcome, and efficiency domains having a large number of (positive) outliers. Mean TPS score decreased from 40.54 in 2014 to 38.04 by 2018. Improvement was shown in mean domain scores for clinical process of care and clinical outcome using 95% confidence intervals, with hospitals gaining 10 points over the study period in clinical outcome. Changes in the mean scores for other domains did not show consistent increases or decreases. Chi-square analyses of hospital ranking categories showed some evidence that, as a group, hospitals initially ranked in the Bottom 5% are making consistent annual movements to higher categories. In contrast, over half of the hospitals ranking in the initial Top 5% remained in the top category across all study years. It may be time for CMS to redesign the HVBP incentive program to assure the measures accurately demonstrate sustained improvement, the domain weights appropriately reflect the level of importance, and the TPS comparative ranking methodology does not discourage lower-performing hospitals from actively improving the care they deliver and achieving top ranks.

Concepts for the implementation of a technological platform for the production of specific antidotes for CBRN medical protection

"Abstract: All large armies (EU and/or NATO) have pharmaceutical production facilities to provide the necessary antidotes for the troops and the population: The French Army Medical Directorate produces many military-specific pharmaceutical products in its own laboratory, the Turkish Army owns its own medicines factory, including CBRN antidotes, the US Army, in addition to a sustained drug purchase program in the pharmaceutical industry has launched a new concept: Pharmacy on demand. Providing the armed forces with antidotes is a necessity, the concept for their endowement in this sense can be based on imports (sometimes impossible to achieve) or on the national development of a specialized production structure. The design or construction of a specific production capacity for antidotes can be accomplished on multiple variants, with a complexity proportional to the identified need. The total costs are high, but the objective and implementation of effective antidote supply mechanisms is a security guarantee for the armed forces and the civilian population (through commercialization to allied forces), given the risks of terrorist threats and hybrid warfare. Keywords: medical protection, antidote, production, technological platform, medical countermeasures, pharmaceutical technique, orphan drug production "