Times Of Financial Stress Research Articles

The State Dependent Impact of Bank Exposure on Sovereign Risk

The theoretical literature remains inconclusive on whether changes in bank exposure towards the domestic sovereign have an adverse effect on the sovereign risk position via a diabolic loop in the sovereign-bank nexus or reduce perceived default risk by acting as a disciplinary device for the sovereign. In this paper we empirically analyze the impact of exogenous changes in bank exposure on the risk position of the sovereign within a Markov switching structural vector autoregressive in heteroscedasticity (MSH-SVAR) framework for a set of EMU countries. We add to the methodological literature by allowing for regime dependent shock transmissions according to the volatility state of the financial system. Finding support for both, a stabilizing and a destabilizing effect, we document a clear clustering among the country sample: Rising bank exposure increased default risk for the EMU periphery, but decreased credit risk for the core EMU countries during times of financial stress.

Internal Liquidity Management and Local Credit Provision

This paper studies the patterns of internal liquidity management and their effect on bank lending, using a novel branch-level dataset of Brazilian banks. Our results suggest that internal liquidity management increases during times of financial stress. Privately owned banks are most affected by a liquidity shock, and increase the level of internal funding to maintain their branch lending, while their government-owned competitors react strategically. Private and government banks increase the funding of branches in concentrated and riskier areas. This funding translates into more lending, as the sensitivity of lending to internal funding remains high after the liquidity shock. Altogether, this paper provides branch-level evidence of the way that banks ration internal liquidity, both in normal times and in times of stress, and the effect this has on bank lending.

The Nonlinear Interaction between Monetary Policy and Financial Stress

This paper analyzes the nonlinear relationship between monetary policy and financial stress and its effects on the transmission of shocks to output. Results from a Bayesian Threshold Vector Autoregression (TVAR) model show that the effects of monetary policy shocks on output growth are stronger during normal times than during times of financial stress. Monetary policy shocks are effective to ease stressed financial conditions, but have limited ability to fully contain the buildup of vulnerabilities. These results have important policy implications for central banks' countercyclical policies under different financial conditions and for 'lean against the wind' policies to address financial vulnerabilities.

The Nonlinear Interaction Between Monetary Policy and Financial Stress

This paper analyzes the nonlinear relationship between monetary policy and financial stress and its effects on the transmission of shocks to output. Results from a Bayesian Threshold Vector Autoregression (TVAR) model show that the effects of monetary policy shocks on output growth are stronger during normal times than during times of financial stress. Monetary policy shocks are effective to ease stressed financial conditions, but have limited ability to fully contain the buildup of vulnerabilities. These results have important policy implications for central banks’ countercyclical policies under different financial conditions and for “lean against the wind” policies to address financial vulnerabilities.

Food Insecurity and Financial Access during an Economic Recession: Evidence from the 2008 SIPP

ABSTRACTThis study examines the association between financial access, unemployment, and household food insecurity during the economic recession (N = 14,417). The unbanked lack financial access to smooth their consumption during times of financial stress. The dependent variable is food insecurity, the independent variable is banked status, and unemployment experience is a moderator. The results of this study, using Survey of Income and Program Participation data, indicate financial access and unemployment are significantly related to food insecurity for the general population, but there is no evidence that financial access mitigates food hardship for the unemployed. Policy implications are discussed.

Bank Liquidity and the Interbank Market

Banks exchange liquidity in the money market to absorb payment shocks. In a well-functioning market, banks in need of liquidity should not pay a premium when borrowing. We combine data on bank reserves at the central bank and interest rates paid in the money market to study how bank liquidity affects interbank rates. Banks with scarce liquidity pay only marginally higher rates than do those with ample liquidity. However, during times of financial stress, on days with large payment activity, and when the need for liquidity is more pronounced, those short of liquidity pay a higher cost. To address the potential issue of unobserved, time-varying credit risk, we also provide estimates based on a differencing strategy and on the use of an instrument for a bank's liquidity position. The latter approach suggests a higher cost of lacking liquidity, though the cost remains economically small. We also find that bank capital ratios affect the decision to borrow or lend, but not the interest rate on loans. Specifically, banks with ample capital are more likely to borrow and less likely to lend, likely reflecting precautionary behavior on the part of riskier banks.

A Liquid Benchmark for Private Real Estate

Commercial real estate represents an important element of the asset allocation process, but is difficult to access directly. There are high barriers to entry and exit. In times of financial stress, it can be very difficult to liquidate holdings. Listed (or publicly held) real estate is far more liquid, but also comes with its own set of problems. These securities are much more volatile, especially over shorter time frames, and incorporate an additional layer of corporate leverage. Indexes tracking direct and listed real estate differ significantly in their calculation methodologies, making direct comparisons difficult. We have attempted to capture the best of the two worlds: an investable index with a risk and return profile of direct (private) real estate, providing a more accurate measure of the asset class’s performance and the liquidity of listed (public) real estate, providing timelier valuations, greater transparency, and greater investability. We achieved this construction by lowering the volatility and deleveraging a listed real estate index. This approach may appeal to both smaller asset owners who are not large enough to build a diversified direct real estate portfolio and to larger investors as a liquid way to quickly build or reduce exposure to this asset class.

Międzyrynkowa premia za wartość w okresach kryzysów finansowych

Międzyrynkowa premia za wartość w okresach kryzysów finansowych

For Whom Money Matters Less: Social Connectedness as a Resilience Resource in the UK.

The current literature shows that both absolute and relative income are important for happiness, but there is little work emphasising how the strength of the relationship is dependent on personal and social factors. I hypothesise that social connectedness influences the money-happiness relationship because the effect of money is in part felt through the acquisition of social status, whereas status (and associated psychological benefits such as self-worth) can alternatively be gained through social connectedness. In particular, it is theorised that ‘weak ties’ when co-existing with good quality informal ties have a separable and additional benefit to subjective well-being, and that it is the socially isolated who have the most to gain from doing well financially. Social connectedness is conceptualised as a ‘resilience resource’ which has a buffering effect on subjective well-being. Data from the British Household Panel Survey are used, first to establish a measurement schema of connectedness using latent class analysis, and secondly in a multilevel model of life satisfaction with observations from seven consecutive years nested within individuals. The results show that connectedness makes a larger difference to satisfaction in times of financial stress, and that the satisfaction of the socially isolated can ‘catch up’ to some degree with those with larger networks when things are going well financially. The findings also confirm that those for whom money makes the smallest contribution to happiness are those with both strong and weak ties. Weak ties have an additional benefit compared to having strong ties alone. In summary, connectedness has the power to narrow the well-being gap that exists between times of financial struggle and times of relative comfort. It suggests that the psychological benefits of social integration have the capacity to displace money as a source of status and self-worth, and similarly that the importance of money may be exaggerated where these psychological gains are not available through other domains of life.Electronic supplementary materialThe online version of this article (doi:10.1007/s11205-014-0858-5) contains supplementary material, which is available to authorized users.

Comovements of Financial Markets in the EU countries

This article examines comovements between stock and government bond markets in the EU countries. Previous authors mostly indicated significant highly volatile comovements between the markets. In addition, it was proven in several markets that in times of financial crisis the comovements between financial markets are becoming stronger and negative correlations appear indicating flight-to-quality from stocks to government bonds. Despite of that, there exists a tendency to analyze only financial markets of Eurozone countries leaving the rest of the EU members behind. The aim of this research was to fill this gap by providing insights of comovements between stocks and government bond markets of al thel EU countries together with recommendations for portfolio diversification.The first stage of the research was implemented by using Pearson’s correlation coefficient. Logarithmic returns on 52 market indices were used for calculations of correlation coefficients in the period of 1993–2012. The second stage of the research included the estimation of correlations in the period of 2008–2013, commonly referred to as financial crisis. In addition, statistical significance of coefficients was evaluated by testing Fisher’s null hypothesis.The results of the research show that majority of correlation coefficients between stock and government bond indices were rather small and not significant during the full sample period with the exception in financial markets of Greece, Hungary, Lithuania and Romania (weak-medium statistically significant correlations). The results indicate financial markets in the countries mentioned being more related than in the rest of the EU countries, not being suitable for diversification between asset classes. No significant negative correlation between market indices in 1993–2013 was recorded implying that in times of stock market fall government bond markets would not be the safe haven for investors. Analysis of comovements between stock and government bond markets of the EU countries in the period from 2008 resulted in increase of correlation coefficients in 19 of 25 EU countries analyzed indicating strengthened comovements in times of financial stress. Despite of that, most of these correlations were positive. This is not beneficial for investors as diversification effect might disappear when it’s most needed. As exceptions should be mentioned Scandinavian countries where significant negative correlation coefficients obtained between stock and government bond indices indicate an existence of flight-to-quality. This could not be confirmed for the rest of the EU countries’ markets.The results of the research partly comply with the results of previous studies in the topic, mostly confirming the tendencies for biggest EU financial markets. The research can be further implemented towards different directions: inclusion of the US as the major financial market, concentration on the countries with strongest comovements and provision of detailed estimation of them; inclusion of corporate bond indices; choice of other method for estimation of comovements between financial markets of the EU countries. Finally, the analysis needs more focus on the investigation of the reasons for differences in the relationship between financial markets.DOI: http://dx.doi.org/10.5755/j01.ee.25.3.5079

How organizational characteristics affect the adaptive tactics used by human service nonprofit managers confronting financial uncertainty

AbstractThe way that nonprofits respond to funding uncertainty is crucial to their ability to meet goals and position themselves for future success. This article investigates how structural, managerial, and financial characteristics affect the adaptive tactics used by human service nonprofits during times of financial stress. These tactics include adding new programs, reducing programs or staff, expanding or starting joint programs, pursuing earned income, and expanding advocacy involvement. Using longitudinal data on human service nonprofits collected on either side of the 2002–2003 economic downtown, we find that larger size provides organizations with a unique ability to choose among different adaptive tactics, as larger size was significantly predictive of adding new programs, reducing programs, expanding advocacy, and pursuing earned income. Strategic planning was positively associated with innovative tactics such as starting joint programs or pursuing earned income. Financial stress or declines in an organization's major funding source led to cutbacks, as expected, but managers who foresaw these challenges were able to respond proactively by adding programs or starting joint programs. However, managers with more training did not respond much differently than did other managers, and organizational age and use of performance management tools had no effect in guiding organizational responses to financial uncertainty.

Why is US Dollar Bond Funding for International Banks More Expensive?

This paper decomposes issue spreads on USD-denominated bonds issued during the period between mid-2005 and mid-2010 into credit risk and liquidity premium components. Regression analysis shows that the behaviour of the credit risk component is well-explained by a structural model of default, consistent with prior research. However the sensitivity of the credit risk component to the structural model variables is nullified by the introduction of government guarantees. We also find that the liquidity premium component can be partially explained by the bid/ask spread in the secondary market, consistent with the liquidity premium impounding future illiquidity, and with the issue size, consistent with the price pressure hypothesis. Government guarantees reduce the liquidity component of the issue spread, consistent with the notion that government guarantees enhance the marketability of bonds during times of financial stress. We attribute the increase in long-term funding costs experienced by international banks raising funds in the US bond market to the investor perception that banks are less creditworthy than in the past.

Financial Frictions and Credit Spreads

This paper uses the credit-friction model developed by C'urdia and Woodford, in a series of papers, as the basis for attempting to mimic the behavior of credit spreads in moderate as well as in times of crisis. We are able to generate movements in representative credit spreads that are, at times, both sharp and volatile. We then study the impact of quantitative easing and credit easing. Credit easing is found to reduce spreads unlike quantitative easing which has opposite effects. The relative advantage of credit easing becomes even clearer when we allow borrowers to default on their loans. Since increases in default offset the beneficial effects of credit easing on spreads, the policy implication is that, in times of financial stress, the central bank should be aggressive when applying credit easing policies.

Financial Frictions and Credit Spreads

This paper uses the credit-friction model developed by C?urdia and Woodford, in a series of papers, as the basis for attempting to mimic the behavior of credit spreads in moderate as well as in times of crisis. We are able to generate movements in representative credit spreads that are, at times, both sharp and volatile. We then study the impact of quantitative easing and credit easing. Credit easing is found to reduce spreads unlike quantitative easing which has opposite effects. The relative advantage of credit easing becomes even clearer when we allow borrowers to default on their loans. Since increases in default offset the beneficial effects of credit easing on spreads, the policy implication is that, in times of financial stress, the central bank should be aggressive when applying credit easing policies.

Ten years’ experience with the Swiss National Bank’s monetary policy strategy

SummaryIn December 1999 the Swiss National Bank (SNB) abandoned monetary targeting and introduced a new monetary policy strategy. The cornerstones of the new framework are an explicit definition of what the SNB considers to be price stability, a forecast of inflation over a three-year horizon, and a target range for the three-month Swiss franc Libor. The strategy lived up to expectations in every respect and contributed to strengthening the SNB’s credibility. In particular, the new framework’s flexibility proved successful in times of financial stress. The term reference interest rate contains an automatic monetary stabilizer that has insulated the nonfinancial sector from much of the turbulence. The major challenge lying ahead is sustained accuracy in the assessment of future inflation.

LYDIA MURDOCH. Imagined Orphans: Poor Families, Child Welfare, and Contested Citizenship in London. (The Rutgers Series in Childhood Studies.) New Brunswick: Rutgers University Press. 2006. Pp. xii, 252. $44.95

In this engaging book, Lydia Murdoch contests assumptions concerning the waifs and strays familiar to the plots of Victorian melodramatic fiction and Evangelical tracts: the ragged girls and boys of the urban sprawl known as “street arabs.” Murdoch unpicks the imaginary waif of cultural representation to demonstrate how rhetorical and visual devices, notably melodrama, were deployed to excite the interest and sympathy of middle-class philanthropists. For instance, waif children represented in the propaganda of Dr. Thomas Barnardo, instigator of a web of children's homes and purveyor par excellence of the waif type, were repeatedly shown barefoot, in ragged clothing, with matted hair and dirty faces. Children were dramatized in such images, depicted as primitive racial Others and, in the case of girls, frequently sexualized. Pivotal to such representations was the notion that rescued children were orphans or children without homes; they were “nobody's children” and thus every right-thinking person's concern. As Murdoch ably illustrates, rescuing waifs depended on a language of absentee parents to skirt issues of parental rights over offspring and did not, in fact, represent the true status of children. Murdoch not only seeks to reclaim the networks of parents and kin who maintained an interest in so-called “orphan” children but also aims to recover the lost experiences of families who depended on the state and charitable welfare services in order to survive and remain, however loosely, connected. This endeavor is inevitably skewed away from the independent voices of the poor, relying as it does largely on the case records and reports of charitable bodies. Nonetheless, Murdoch succeeds in extrapolating examples of parents, especially single mothers, for whom recourse to child welfare institutions at times of financial stress was a temporary measure and who retained an interest in their offspring during the child's sojourn in institutional care. Murdoch is at pains to stress the agency of poor parents in the negotiation of child welfare, and her arguments have major implications for historical perceptions of the internal dynamics of poor families although she does not pursue them fully here (it is, after all, a book on welfare agencies). Instead, Murdoch focuses on stories of how families arrived at the juncture where recourse to child welfare agencies was a necessary strategy.

An Analysis of the Relationship Between International Bond Markets

It is frequently suggested that the globalisation of financial markets has been responsible for reducing the scope for independent monetary policy action by strengthening the relationship between national fixed income markets. An associated concern is that the linkages between these markets become stronger in times of financial market stress. This paper reports a decomposition of the relationship between the government bond markets of Germany, the United Kingdom and the United States. It is found that the yield curves for each of these markets are influenced by international factors. Furthermore the impact of these increases significantly during times of financial stress. It is also found that while the total covariation between these markets is relatively stable, components of the covariance can vary substantially over time.

Canada's Crisis in Arctic Science: The Urgent Need for an Arctic Science and Technology Policy; Or, "Why Work in the Arctic? No One Lives There"

Canada has entered a deep crisis in Arctic science. The lack of a formal Arctic Science and Technology Policy has left our highly fragmented efforts in Arctic research exceedingly vulnerable during times of financial stress and left us effectively without a voice. Logistical support, essential for operating in our vast northern territory, has all but disappeared as a facilitator for both government and university research. Within two years, only specially funded research will be possible, and opportunities for new careers will continue to plummet. The Arctic science community must alert the government to take action. If nothing is done to secure its future, Canada's capacity to perform Arctic research will collapse. ... We speak here as active Arctic scientists who are alarmed by the rapid and continuing erosion of northern research in Canada, and who wish to highlight this crisis, draw instructive contrasts with recent U.S. initiatives, and offer, for discussion, a possible solution in light of current Canadian circumstances. Our essay seeks to make it clear that, if corrective action is not taken, Canadian Arctic science will shrivel to insignificance.

Managing Public Sector Training during Times of Financial Stress

This paper first discusses the importance of effectively managing public sector training during times of reduced funding. Second, it presents a framework for the systematic analysis of key training resources. Third, it provides recommendations that can assist public sector trainers during times of economic downturns. And, finally, the article concludes with several proactive approaches to increasing training efficiency currently in use in the public sector.

Colleges under pressure: Budgeting, presidential competence, and faculty uncertainty

This article reports on a two-case comparative study of college presidential leadership during times of financial stress, and it focuses on how presidents interpret financial hardship to their faculties rather than on how they address it instrumentally. The study concludes that a college budget, like many administrative tools and processes, is simultaneously an instrument and a symbol, and that feelings of financial stress (often induced by a president) may heighten the budget's symbolic meaning for faculty and other members of a college community. College leaders who are not sensitive to this kind of interpretive variability may fail to meet their faculty's expectations for leadership during pressured times.