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...

Measuring value and interest rate risk in retail financial markets such as the market for consumer deposits has proven to be a very difficult problem for financial firms. Standard models of value and interest rate risk (duration), based on the competitive market paradigm, are inappropriate in retail markets characterized by sluggish price and quantity behavior. Although the penetration of sophi...

Abstract We study how introducing a central bank digital currency affects equilibrium allocations and welfare in an environment where both deposits are used exchange. highlight important policy tradeoff: while tends to improve efficiency exchange, it may also crowd out deposits, raise banks’ funding costs, decrease investment. derive conditions under which targeted currencies, compete only with...

In this paper we argue that if monetary policy has insufficient deflation, private agents have incentives to set up alternative payment systems like fractionally backed bank deposits, which pay interest on the means of payment. In a competitive environment with free entry, these alternative systems are inherently fragile in the sense that they are subject to socially costly bank runs. These soc...

Hedge funds attempting to take advantage of market-wide liquidity shocks are not limited by opaqueness-caused capital constraints, because banks optimally supply them with backup credit lines. During such shocks, government-protected bank deposits receive inflows that lower a bank’s opportunity cost of lending. The inflows also provide a private signal that helps the bank estimate the timing an...

In this paper, a dynamic network model based on agent behavior is introduced to explain the formationmechanismof interbankmarket network.We investigate the impact of credit lending preference on interbank market network topology, the evolution of interbank market network and stability of interbank market. Experimental results demonstrate that interbank market network is a small-world network an...

Relationship lending helps reduce asymmetric information, which potentially creates benefits for borrowers. However, empirical evidence is mixed. We conduct a meta-analysis to summarize and explain the heterogeneity in the results in the literature using hand-collected information from 101 studies in the U.S., Europe, Asia and Latin America from 1970-2010. We find that strong relationships are ...

Sehrish Gul Faiza Irshad Khalid Zaman The purpose of this research is to examine the relationship between bank-specific and macro-economic characteristics over bank profitability by using data of top fifteen Pakistani commercial banks over the period 2005-2009. This paper uses the pooled Ordinary Least Square (POLS) method to investigate the impact of assets, loans, equity, deposits, economic g...

In this study, the author compares the supply-demand mismatch of retail banking services and the changing patterns in Illinois and New York from 1982 to 2007 amid fundamental banking transformation and geographical deregulation. The study uses measures of concentration like the Herfindahl-Herschman Index (HHI) and the E-Index. The study finds that the traditionally unit banking Illinois has nar...