Excess Reserves Research Articles

Optimal monetary policy with interest on reserves and capital over-accumulation

We propose a model where banks with limited liability issue deposits backed by capital, and households demand deposits and currency as means-of-payments for decentralized trades. When financial friction is severe or productivity is low, banks hold excess reserves in equilibrium with a low nominal interest rate, and with capital holdings above the efficient level. In that region, paying a positive interest on reserves financed by money creation is optimal. Under a fixed inflation target, optimal interest rate on reserves is procyclical. The constrained efficient allocation is implemented with a fixed and a proportional liquidity requirement in addition to interest on reserves when productivity is not too high.

Multiplier and Velocity of Money Relationship of Cartal and Electronic in Indonesia 2009.Q1-2018.Q4

This research explain about the impact of electronic money and currency on money multiplier M1 and velocity of money M1 with VECM analyzing method. data used in this reserach are secondary data, it used from 2009 quarter I until 2018 quarter IV. There are 4 measurements that are used to measure money multiplier, electronic money, currency ratio, excess reserve ratio, reserve requirement ratio. To measure velocity of money there are 5 measurements that are used, electronic money, currency, inflation, product domestic product, and interest rate SBI. The result found that in the long term electronic money and currency affected money multiplier M1. On the velocity of money model electronic money and currency affected velocity of money M1 on the long term. The result of impulse response function (IRF) on money multiplier M1 show that electronic money has a positive correlation, while the currency ratio has a negative correlation, on the velocity of money model both electronic money and velocity of money showed a negative correlation. In variance decomposition found that electronic money has a huge contribution to affect money multiplier model and velocity of money model M1. Thus the results of the study can be concluded that electronic money affected both money multiplier M1 and velocity of money M1. The monetary authorities should take electronic money into consideration as crucial variable in the money supply to maintain the stability of money supply.

The impact of CEO compensation and excess reserves on bank risk-taking: the moderating role of monetary policy

We examine the effects of CEO compensation, excess reserves, and role of monetary policy on bank risk-taking behaviour based on a sample of 88 Chinese commercial banks over the period of 2003–2014. We find evidence that suggests that incentives present in CEO compensation contracts and excess reserves exert a positive and significant impact on risk-taking and credit risk. However, we find that the positive effects of CEO compensation and excess reserves on risk-taking are cancelled out by the interaction of CEO compensation and excess reserves. Further analysis suggests that the central bank’s monetary policy serves to restrain the effects of an interaction between CEO compensation and excess reserves on bank risk-taking and credit risk. This study extends the theoretical model, which indicates that excess reserves are a major source of credit risk, and notes that the effects of incentives inherent in CEO compensation contracts and excess reserves on bank risk policies are contingent on the monetary policy pursued by the central bank in China’s emerging economy.

An industrial‐organization approach to conventional and unconventional monetary policy

AbstractIn this study, we use an industrial‐organization model of the banking industry with money creation to examine the effect of conventional and unconventional monetary policy on the money stock. We consider quantitative monetary easing, qualitative monetary easing, and a negative interest rate on excess reserve balances as unconventional monetary policy. Our main findings are as follows. First, under a plausible setting of the parameters, the model with money creation supports the liquidity puzzle, in which tight monetary policy increases the money stock. The greater the number of banks, the stronger the effect. Second, quantitative monetary easing has no impact on money stocks, loans, deposits and bank holding assets other than government bonds. Third, the effect of qualitative monetary easing is ambiguous, but when the number of banks is sufficiently large, the effect is almost the same as the interest rate on reserves. Fourth, the effect of negative interest rate policy is quite complex.

On regulation and excess reserves: The case of Basel III

AbstractCommon explanations for the observed rise in excess bank reserves include payment of interest on reserves and liquidity regulations, but capital regulations may also matter. We show that a profit‐maximizing bank substitutes from higher risk‐weighted loans to lower risk‐weighted reserves and Treasuries if the risk‐based capital ratio, but not the leverage ratio, increases. Estimated treatment effects for “advanced approaches” bank holding companies, the focus of Basel III capital regulations, initially increased for reserves after the regulatory changes but later decreased when treatment effects for Treasuries increased as Treasury yields rose; treatment effects for loans became increasingly negative.

Bank lending and interest on excess reserves: An empirical investigation

This paper econometrically tests for effects on bank lending of the Federal Reserve’s policy of paying interest on excess reserves (IOER). Following the 2008 financial crisis, US banks decreased their loan allocations and increased holdings of excess reserves. A model of bank asset allocation shows that when the rate of IOER is higher than other short-term rates, banks will switch from zero excess reserves to a regime with higher excess reserves and lower lending. Using a sample of panel data on US banks from 2000 through 2018, we find evidence of a switch to a positive excess reserve regime in the post-crisis period. Controlling for market interest rates, loan demand, and economic activity, we find that IOER accounts for the majority of the decline in bank lending after the financial crisis.

Test-bedding the new reporting standards for loan loss reserves

We test-bed the differences in properties of the Expected Credit Loss (ECL) and Current Expected Credit Loss (CECL) models in a bank loan setting with respect to their impacts on the adequacy, comparability, and predictability of loan-loss reserves and the volatility of reported profit. To do so, we develop a stylized bank-loan setting in a controlled laboratory environment with a series of eight different secured personalloan portfolios. Fifty-six senior university accounting students take the role of loan managers responsible for making annual loan-loss reserve decisions. We find that the laboratory ECL and CECL reserves are greater than the baseline reserves for the Incurred Credit Loss (ICL) model (which was in place before the introduction of ECL and CECL models), but both regimes lead to lower reserves in the laboratory setting than we find for our risk-neutral baselines. In the laboratory, CECL displays fewer uncovered reserves and greater excessive reserves than ECL. The comparability of reserves deteriorates under the two new regimes relative to ICL, and CECL shows relatively more comparable reserves than ECL. While the laboratory ECL exhibits a modest increase in predictability over ICL, CECL shows a significant decline. Finally, profit volatility falls significantly under both ECL and CECL relative to the ICL baseline, and the laboratory results show less volatility than the risk-neutral baseline values.

Off the Rails: The Real Effects of Railroad Bond Defaults following the Panic of 1873

Although corporate default crises are often quite severe, previous work has found little impact on real macroeconomic variables. This article investigates the relationship between railroad defaults and the balance sheets of local banks following the Panic of 1873. Receivers appointed to run railroads in default lacked the legal tools necessary to fully maintain railroad operations. The results indicate that railroad bond defaults negatively impacted the lending activity of local banks. Affected banks experienced declines in loans and deposits along with increases in excess reserves. These findings point to a disruption of the transportation network attributable to the railroad bond default crisis.

Arbitrage Capital of Global Banks

We show that the role of unsecured, short-term wholesale funding for global banks has changed significantly in the post-financial-crisis regulatory environment. Global banks mainly use such funding to finance liquid, near risk-free arbitrage positions—in particular, the interest on excess reserves arbitrage and the covered interest rate parity arbitrage. In this environment, we examine the response of global banks to a large negative wholesale funding shock as a result of the U.S. money market mutual fund reform implemented in 2016. In contrast to past episodes of wholesale funding dry-ups, we find that the primary response of global banks to the reform was a cutback in arbitrage positions that relied on unsecured funding, rather than a reduction in loan provision.

Drivers of income diversification in credit unions: Do size, resource, liquidity, and environment matter?

This paper investigates income diversification in credit unions in Ghana. We make use of the random effect, Hausman–Taylor, and fractional regression to assess income diversification. We find empirical support that there exist differences between workplace credit union income diversification and other types of credit union. We also find that within nonfinancial income, size, liquidity, loan portfolio, net worth, and economic growth are important. For within liquid financial investment diversification, size, liquidity, resource usage, age, net interest margin, bank concentration, inflation, and economic growth matter. We recommend that with excess reserves, credit unions should pursue liquid financial investment.

Serum testosterone levels are positively associated with serum anti-mullerian hormone levels in infertile women

Anti-Mullerian hormone (AMH) and testosterone (T) both play distinct roles in the early stages of folliculogenesis. However, the relationship between serum T and AMH levels is poorly understood. This study aimed to investigate the association between serum T and AMH levels in infertile women. A total of 1935 infertile women aged 20–46 years were included in the cross-sectional study and divided into four quartile groups (Q1 to Q4) based on serum T levels. Compared to the subjects in the highest T quartile (Q4), those in the lowest T quartile (Q1) showed significantly lower AMH levels. After adjustment for age, body weight, body mass index and FSH, increasing T quartile categories were associated with higher AMH levels. Binary logistic regression analyses revealed that the odds for the risk of diminished ovarian reserve (DOR) were 11.44-fold higher in Q1 than in Q4 and the odds for the risk of excess ovarian reserve (EOR) were 10.41-fold higher in Q4 than in Q1. Our data show that serum T levels are positively associated with serum AMH levels and suggest that androgen insufficiency may be a potential risk factor for DOR; androgen excess may lead to EOR in infertile women.

Central Bank Digital Currency and Balance Sheet Policy

This paper studies how the introduction of a central bank digital currency (CBDC) interacts with ongoing monetary policies. We distinguish two kind of policies: standard policy, where the central bank invests in treasuries, and quantitative easing, where the central bank invests in risky securities. In each scenario, we introduce an interest-bearing CBDC, and study the equilibrium allocations. Our analysis reaches three main conclusions. The first is that the equilibrium impact of a CBDC depends on the ongoing monetary policy. Second, when the central bank conducts quantitative easing, the introduction of a CBDC is neutral under two conditions: the cost of issuing a CBDC is equal to the interest on reserves, and the demand for CBDC deposits is smaller than the amount of excess reserves in the system. Third, the introduction of a CBDC might render quantitative easing a quasi-permanent policy, as commercial banks optimally use their excess reserves to accommodate retailers’ demand for switching from bank deposits to CBDC deposits.

Sexual Consent; Is it Overrated?

Sexual intercourse has become overly simplified. To some, it has become no more than a sexual act involving two or more persons. The days of being overwhelmed by the concept and expressing excessive reservation about the act and discussion of it are waning. Even young ones are beginning to see it as a rite of passage to adulthood. Only in religion and culture do we find those still interested in conserving other dimensions namely; when it is moral and when it is immoral as well as notions of responsibility. Even among them, it is becoming a matter of teaching than it is of practice. And it is not the place of the law to wade into such matters unnecessarily. However, there are issues surrounding sexual intercourse that bring it to the fore of public attention. Paramount among them is when it is had without the consent of the other party. Some see it as a right, fun, revenge or a result of brief moment of loss of control. Sometimes, the Devil is blamed too. These reasons are given in a bid to evade responsibility, guilt and the consequences. The problem however has not always been about consent as a matter of grammar but the intricacies inherent within it namely; how same is to be sought and given, what valid consent constitutes, if it can be withdrawn after it has been given, and the practical difficulties in each case. This article shall endeavour to discuss these issues and more.

Quantitative easing and the hot potato effect: Evidence from euro area banks

We use bank-level data to examine the behaviour of reserves in the euro area banking system over the course of the ECB QE programme. Previous research on QE has often assumed banks passively absorb the additional reserves generated by asset purchases. However, with a negative deposit rate in place throughout our sample, euro area banks have had a disincentive to hold excess reserves and thus could wish to treat them as a “hot potato” that is preferably passed on to other banks. We find evidence for this hot potato effect, reporting substantial month-to-month churn in bank reserves as well as evidence that banks are pushing reserves off their balance sheets through debt security purchases. As such, this hot potato effect seems likely to have had an effect on European bond yields that is distinct from the portfolio rebalancing effect that has been the primary emphasis of the existing QE literature.

Nonstandard monetary policies and bank profitability: The case of Spain

AbstractThe aim of this study is to examine the effects of nonstandard monetary policy measures implemented by the Eurosystem on the Spanish banking sector profitability. To do this, a new database is built merging data from the Spanish Banking Industry Statistical Yearbook and from the Spanish Stock Market Commission. Applying different econometric techniques to a panel of 54 Spanish banks that covers the period 2001–2017 and controlling for bank‐specific factors and macroeconomic conditions, no discernible impact is found between the Eurosystem's nonstandard monetary policy measures (ECB's total assets, excess reserves and the slope of the yield curve) and bank profitability measured as return on assets, pre‐tax operating income and interest margins. This result is robust to different specifications and to different groups of banks.

Precautionary Liquidity Shocks, Excess Reserves and Business Cycles

This paper identifies a precautionary banking liquidity shock via a set of sign, zero and forecast variance restrictions imposed. The shock proxies the reluctance of the banking sector to lend to the real economy induced by an exogenous change in financial intermediaries' preference for high liquid assets. The identified shock has sizeable and state (volatility) dependent effects on the real economy. To understand the transmission of the shock, we develop a DSGE model of financial intermediation with credit and liquidity frictions. The precautionary liquidity shock is shown to work through two channels: it increases the level of reserves and the deposit rate. The former is a balance sheet effect, which reduces the loan-to-deposit ratio. The higher deposit rate affects the intertemporal decisions of households and the cost of borrowing to firms. The overall effect is a downward co-movement in output, consumption, investment and prices, which is amplified the higher are the long-run risk in the economy and the responsiveness of banks to potential risk.

REFLECTIONS ON MONETARY POLICY AND ITS FUTURE

[...]I should say that there was no greater single authority who impacted our policy deliberations when I served as chairman of the House Financial Services Committee than John Taylor. [...]the balance sheet can certainly be injurious to future taxpayers, and it is one more way that the Fed's independence could be compromised. [...]when the 2008 financial crisis occurred, the Fed asked for the power to pay interest on excess reserves. The CBO can't foresee a year in the next decade where the national debt won't rise faster than national income, which is a frightening prospect. [...]the Fed has a massive balance sheet with the assets it has bought, and it has borrowed the money from commercial banks to pay for those assets.

ОСОБЛИВОСТІ ОЦІНКИ ДИСБАЛАНСІВ РОЗВИТКУ СУЧАСНИХ БІРЖОВИХ РИНКІВ

The development of the domestic exchange market is constrained by the imperfection of legislative and regulatory regulation of the activities of market participants, the suboptimal infrastructure of the market and the lack of a coherent, fully debugged mechanism for assessing financial instability. Stock market indices of financial stress are used as an important indicator of economic processes, they are the most acceptable tools for financial analysis in world practice, and also reflect fluctuations in supply and demand for securities and are used by investors to form an effective investment strategy. It is proposed to use the method for calculating a structured index of financial stress, which includes a set of factors and indicators as key indicators of the exchange market. The features of filling of each of the constituent elements of this index are disclosed. The indicator characterizing trigger events is separately highlighted, its relationship with stress testing is shown, which makes it possible to assess the vulnerability of the system to shocks of various nature. The presented methodology for calculating the financial stress index, including a set of individual and general financial indicators, will make it possible to respond in a timely and timely manner to periods of exacerbation of instability in the financial sector, identify threats and vulnerabilities. The article proposes a method for determining the general economic index, which is carried out by aggregating indicators of sectoral imbalances in indicators of general economic nature. The use of aggregation tools implies the fact that the excess reserve (stock) of liquidity in a particular sector is not able to balance or mitigate its lack to others. Of course, this is rational, because when trigger events occur, which implies the need for expectations, uncertainty about the credit quality of counterparties often increases. This means that financial markets cannot always provide liquidity flows. The main advantages of the proposed method of calculating the general economic index, which aggregates the indicators of sectoral imbalances in the indicators of general economic nature of modern stock markets should include the ability to prevent and prevent crises at all levels of management decisions. This system can and should become a common tool for maintaining the necessary sustainable economic processes. The highlighted features of determining the imbalances in the development of stock markets will allow to relevantly reflect the main periods of growing instability in the financial sector of Ukraine.

METABOLIC CONTROL AND BODY COMPOSITION OF CHILDREN AND ADOLESCENTS WITH PHENYLKETONURIA.

ABSTRACTObjective: To characterize metabolic control and verify whether it has any relation with socioeconomic, demographic, and body composition variables in children and adolescents with phenylketonuria (PKU) diagnosed in the neonatal period.Methods: This cohort study collected retrospective data of 53 phenylketonuric children and adolescents. Data on family income, housing, and mother’s age and schooling level were collected, and anthropometric measures of body composition and distribution were taken. All dosages of phenylalanine (Phe) from the last five years (2015-2019) were evaluated and classified regarding their adequacy (cutoffs: 0-12 years: 2-6 mg/dL; 12-19 years: 2-10 mg/dL). Adequate metabolic control was considered if ≥7%) of the dosages were within desired ranges.Results: The mean (±standard deviation) age in the last year was 10.1±4.6 years. Most of them were under 12 years old (33/53; 62.3%) and had the classic form of the disease (39/53; 73.6%). Better metabolic control was observed among adolescents (68.4 versus 51.4%; p=0.019). Overweight was found in 9/53 (17%) and higher serum Phe levels (p<0.001) were found in this group of patients. Metabolic control with 70% or more Phe level adequacy decreased along with the arm muscle area (AMA) (ptendency=0.042), being 70.0% among those with low reserve (low AMA), and 18.5% among those with excessive reserve (high AMA).Conclusions: Adequate metabolic control was observed in most patients. The findings suggest that, in this sample, the levels of phenylalanine may be related to changes in body composition.

Sovereign Wealth Funds’ Investment Purpose and the Investment Implications

This paper examines sovereign wealth fund (SWF) equity investments in publicly traded firms according to a SWF’s investment purpose and home country political regime. Savings funds focus on long-term value creation; foreign exchange reserve funds focus on reducing the negative carry costs of holding reserves or earning higher returns on excess reserves. The results indicate savings funds located in an authoritarian regime are more activist, their targets experience a positive short-term market reaction but the performance of their targets over the subsequent three years varies depending on the performance metric used.