We investigate the question of whether sophistication in risk management fosters banking stability. We compare a simple banking system which uses an average rating with a sophisticated banking system in which banks are able to assess the default risk of entrepreneurs individually. Both banking systems compete for deposits, loans, and bank equity. While a sophisticated system rewards entrepreneu...

In this paper, we analyze the social value of accounting objectivity in maintaining bank stability. Building on an early, in‡uential accounting work by Ijiri and Jaedicke (1966), we operationalize two informational properties, objectivity and accuracy, in a correlated information structure and embedded them into a model of bank runs. We show that, when compared with the accuracy property, the o...

We develop the model for estimating the default probabilities of banks for Russia, Belarus, Kazakhstan and Ukraine using banking statistics from 2005 to 2013. We find that a binary logit regression works best. In addition, macroeconomic and institutional factors significantly improve model accuracy. The results indicate that there are significantly different sources of risk in banking in the co...

The last few years have witnessed a rapid development in digital finance that may threaten the manner which traditional financial services are being used. It opens up new opportunities for low-income groups and small businesses limited or no access to formal services. Thus, inclusion plays vital role boosting country’s inclusion, fulfilling some sustainable goals achieving higher economic growt...

THE NOTION OF TRANSPARENCY is broad-ranging. It encompasses notions of accountability and political legitimacy of decision makers, as well as the legal and accounting infrastructure in which economic decisions are made. But from the operational perspective of a central bank, transparency can be regarded more narrowly in terms of the disclosure of information to a wider audience. Intuitively, th...

Increased focus on price stability by a discretionary central bank reduces output and price volatility in a model with rationally inattentive …rms. The volatility reduction can be arbitrarily large, e.g., imply a 'Great Moderation', and is particularly pronounced when …rms can process information almost perfectly. The model-implied vector auto-regressive (VAR) dynamics are consistent with the e...

We develop a theoretical model examining the financial stability policy of a central bank serving as both the lender of last resort and the regulator of the financial system. Our model accommodates the possibility of financial contagion through interbank market linkages, and adverse feedback from the financial system to the real economy. We identify the volume of activity in the interbank money...

In this paper we show that a non-monotonic relationship links certain structural characteristics of the banking market to financial stability, including the number of banks in the market, the branching decisions and branch productivity. Using a non-dynamic panel threshold regression we explain how financial stability is affected by baking market power when market power is subject to one or more...

The entry of multinational banks (MNBs) into the developing and transition economies is expected to create more market discipline for domestic banks, thus making them more efficient and enhancing financial stability. But is this the case? Using data from the Bank for International Settlements and the International Monetary Fund, I first try to determine which factors tend to increase MNB lendin...