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This study examines whether a liquidity shock to a banking system could be transmitted to other economies through a network of bank ownership. Firstly we construct cross-border ownership networks for banks located in European coun...
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This study examines whether a liquidity shock to a banking system could be transmitted to other economies through a network of bank ownership. Firstly we construct cross-border ownership networks for banks located in European countries. We then exploit the 2010 European debt crisis as a natural experiment. The analysis shows that subsidiary banks located outside of Greece, Ireland, Italy, Portugal and Spain (GIIPS) but with ownership linkages to these countries have a lower loan growth rate during the crisis period. This suggests that the liquidity shock experienced by GIIPS countries was indeed transmitted to those banks through ownership linkages. Larger subsidiary banks and those subsidiaries that were more profitable are found to be more resilient to the shock. We also find that the parent bank's characteristics affect the transmission of the shock, supporting the notion of an internal capital market operating within these banks. (C) 2017 The Authors. Published by Elsevier B.V.
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Abstract This paper investigates how past experience with banking crises influences an individual’s trust in banks. We combine data on banking crises for the period 1970–2014 with individual data on trust in banks for 52 countri...
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Abstract This paper investigates how past experience with banking crises influences an individual’s trust in banks. We combine data on banking crises for the period 1970–2014 with individual data on trust in banks for 52 countries. We find that experiencing a banking crisis diminishes a person’s trust in banks, and that length of the banking crises is negatively related to trust in banks. An individual’s age at the time of the crisis is important, and significant for individuals between 51 and 60 years of age at the time of the banking crisis. Both severe and mild crises diminish trust in banks, but banking crisis with larger impact on the real economy hits also young people’s trust, while less severe banking crises mainly degrade trust of more mature people. The detrimental effect for trust in banks seems to be connected specifically to systemic banking crises. Other types of financial crises incur no significant effect. Overall, our results indicate that banking crises generate previously unrecognized costs for the economy in the form of a lasting reduction of trust in banks.
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This paper examines the impact of the Global Financial Crisis (GFC) on wealth inequality. We investigate this question, using data for 143 countries for the period 2010–2018. We find no significant impact of the occurrence of the...
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This paper examines the impact of the Global Financial Crisis (GFC) on wealth inequality. We investigate this question, using data for 143 countries for the period 2010–2018. We find no significant impact of the occurrence of the crisis on wealth inequality. We show limited evidence that the severity of the banking crisis affects the change in wealth inequality. Furthermore, the impact of the GFC on the change in wealth inequality is influenced by the country characteristics: the GFC has more enhanced wealth inequality in countries with higher levels of economic and financial development as well as lower initial levels of wealth inequality. We therefore contribute to a better understanding of the real effects of banking crises by providing evidence of the distributional effects of the GFC.
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The purpose of this study is to provide empirical evidence on the links between currency and banking crises. Panel data probit and bivariate probit models are estimated to a sample of 21 developed and developing countries having m...
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The purpose of this study is to provide empirical evidence on the links between currency and banking crises. Panel data probit and bivariate probit models are estimated to a sample of 21 developed and developing countries having monthly observations between the years 1985 and 2010. The findings indicate that banking crises precede currency crises, and vice versa. Currency crises also indirectly influence future banking crises probability through external shocks, liberalized financial markets, or highly-leveraged banking sectors. The study also finds evidence of contemporaneous correlation between the two crises. The results not only confirm the theoretical links between banking and currency crises, but also underline the importance of higher frequency data in analyzing the relationship between various financial crises. (C) 2019 Elsevier B.V. All rights reserved.
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This paper models the effects of a banking crisis, and in particular distinguishes between a short-term crisis, such as a banking panic, and a longer-term crisis, such as a banking insolvency. Using an optimizing framework, it sho...
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This paper models the effects of a banking crisis, and in particular distinguishes between a short-term crisis, such as a banking panic, and a longer-term crisis, such as a banking insolvency. Using an optimizing framework, it shows that depositors shift from deposits into cash in both types of crises, which results in an increase in the interest rates on deposits and loans, and a contraction in output and consumption. However, when the crisis is resolved in a finite time period, there is an intertemporal substitution of consumption, and consumption is postponed until the crisis is resolved. This in turn results in a further decline in the demand for money, availability of credit and output.
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Citizens' trust in economic institutions has generally declined since the onset of the crisis. In particular, Eurobarometer surveys show that trust in the European Central Bank (ECB) has fallen significantly during the crisis. Thi...
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Citizens' trust in economic institutions has generally declined since the onset of the crisis. In particular, Eurobarometer surveys show that trust in the European Central Bank (ECB) has fallen significantly during the crisis. This paper studies the determinants of public trust in the ECB over the lifetime of the euro. Net trust in the ECB has decreased significantly in those countries which have experienced increasing sovereign bond yields and financial market turbulence. The rinding that country-specific variables affect citizens' trust in the ECB may seem counterintuitive. However, it is consistent with strong evidence in the political science literature showing that domestic considerations play a significant role when citizens get an opportunity to express their opinion on EU matters.
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The paper examines the banking system over the last two years, since the first signs of the economic crisis became apparent with the collapse of Northern Rock. The paper will be in four main parts. Part one will consider briefly t...
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The paper examines the banking system over the last two years, since the first signs of the economic crisis became apparent with the collapse of Northern Rock. The paper will be in four main parts. Part one will consider briefly the economic crisis being experienced in the UK from 2007 to present. It will examine the collapse of Northern Rock and the regulatory interplay and causal actions between the USA and the UK. The second part of the paper will consider the main regulatory documentations that have been published during the economic crisis. The third part of the paper considers the impact the economic crisis has had on the banks banking organisations within the UK. The paper looks at the following banking institutions: HBOS, Lloyds, and RBS in terms of the crisis. Finally, the paper will consider what the future could hold for the banking system once it has recovered from the economic crisis.
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The U.S. economy suffered in 2007-10 from crises in mortgage foreclosures and in financial markets, as well as a long recession that some have referred to as the Great Recession. The links between these events, or more broadly the...
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The U.S. economy suffered in 2007-10 from crises in mortgage foreclosures and in financial markets, as well as a long recession that some have referred to as the Great Recession. The links between these events, or more broadly their causes, extent, and effects are sources of continuing controversy and uncertainty. This paper attempts to disentangle the links between the mortgage foreclosure crisis, the financial crisis, a possible banking crisis, and the Great Recession, at least in terms of timing, and also to provide an alternative view to the conventional wisdom, especially for the links of the crises to the recession and to each other.
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This paper examines the impact of bank ownership on credit growth in developing countries before and during the 2008-2009 crisis. Using bank-level data for countries in Eastern Europe and Latin America, we analyze the growth of ba...
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This paper examines the impact of bank ownership on credit growth in developing countries before and during the 2008-2009 crisis. Using bank-level data for countries in Eastern Europe and Latin America, we analyze the growth of banks' total gross loans as well as the growth of corporate, consumer, and residential mortgage loans. While domestic private banks in Eastern Europe and Latin America contracted their loan growth rates during the crisis, there are notable differences in foreign and government-owned bank credit growth across regions. In Eastern Europe, foreign bank total lending fell by more than domestic private bank credit. These results are primarily driven by reductions in corporate loans. Furthermore, government-owned banks in Eastern Europe did not act counter-cyclically. The opposite is true in Latin America, where the growth of government-owned banks' corporate and consumer loans during the crisis exceeded that of domestic and foreign banks. Contrary to the case of foreign banks in Eastern Europe, those in Latin America did not fuel loan growth prior to the crisis. Also, there are less pronounced and robust differences in the behavior of foreign and domestic banks during the crisis in Latin America.
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In this article, I try to answer three questions: (1) How do relationship lending and transaction lending vary over the cycle? (2) How do economic systems that are more bank oriented perform compared to market-oriented systems? (3...
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In this article, I try to answer three questions: (1) How do relationship lending and transaction lending vary over the cycle? (2) How do economic systems that are more bank oriented perform compared to market-oriented systems? (3) What are the consequences on relationship banking of the recent structural bank regulation reforms adopted to separate specific investment and commercial banking activities? Building on some recent evidence, the main conclusions are as follows: (1) Relationship banks protect their clients in normal downturns; (2) when recessions coincide with a financial crisis, countries that rely relatively more on bank financing tend to be more severely hit; (3) the effects of structural bank regulation initiatives on relationship banking are uncertain.
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