How does bank equity affect credit creation? Multiplier effects under Basel III regulations

Both equity and regulation play key roles in determining the ability of banks to create credit. Equity varies endogenously, while regulations are exogenously imposed. This study proposes a banking model to investigate how changes in bank equity due to interest receipts and expenditures affect credit and money creation under Basel III regulations. Four Basel III regulations—the capital adequacy ratio, the leverage ratio, the liquidity coverage ratio, and the net stable funding ratio—are discussed. Their effect on credit creation are demonstrated by the changes that occur in the credit supply in response to the changes in equity arising from interest payments. This study identifies seven regulatory scenarios under these four regulations. In each scenario, there exists a multiplier that relates the change in equity to the resultant change in the credit supply. Correspondingly, there is a multiplier effect on the money supply. This study sheds new light on how bank equity and Basel III regulations affect credit and money creation

On Neural Networks as Infinite Tree-Structured Probabilistic Graphical Models

Deep neural networks (DNNs) lack the precise semantics and definitive probabilistic interpretation of probabilistic graphical models (PGMs). In this paper, we propose an innovative solution by constructing infinite tree-structured PGMs that correspond exactly to neural networks. Our research reveals that DNNs, during forward propagation, indeed perform approximations of PGM inference that are precise in this alternative PGM structure. Not only does our research complement existing studies that describe neural networks as kernel machines or infinite-sized Gaussian processes, it also elucidates a more direct approximation that DNNs make to exact inference in PGMs. Potential benefits include improved pedagogy and interpretation of DNNs, and algorithms that can merge the strengths of PGMs and DNNs

A novel coupling method for unresolved CFD-DEM modeling

In CFD-DEM (computational fluid dynamics-discrete element method) simulations particles are considered Lagrangian point particles. The details of the flow near the particle surface are therefore not fully resolved. When the particle scale is larger than the resolved flow scale, the coupling between the CFD model and the DEM model is critical. An effective coupling scheme should minimize the risk of artificial influences on the results from choices of numerical parameters in implementations and consider efficiency and robustness. In this work, a novel coupling method is developed. The method includes both the smoothing of the particle data and the sampling of the gas phase quantities. The smoothing employs the diffusion-based method. The gas sampling method can reconstruct the filtered fluid quantities at the particle center. The sampling method is developed based on the diffusion-based method with higher efficiency. The new method avoids mesh searching and it can be easily implemented in parallel computing. The developed method is validated by the simulation of a forced convection experiment for a fixed bed with steel spheres. With the well-posed grid-independent coupling scheme, the simulation results are in good agreement with the experimental measurements. The coupling effects and the computational cost are discussed in detail

An efficient symmetric electrolyzer based on bifunctional perovskite catalyst for ammonia electrolysis

Ammonia is a natural pollutant in wastewater and removal technique such as ammonia electro‐oxidation is of paramount importance. The development of highly efficient and low‐costing electrocatalysts for the ammonia oxidation reaction (AOR) and hydrogen evolution reaction (HER) associated with ammonia removal is subsequently crucial. In this study, for the first time, the authors demonstrate that a perovskite oxide LaNi0.5Cu0.5O3‐δ after being annealed in Ar (LNCO55‐Ar), is an excellent non‐noble bifunctional catalyst towards both AOR and HER, making it suitable as a symmetric ammonia electrolyser (SAE) in alkaline medium. In contrast, the LNCO55 sample fired in air (LNCO55‐Air) is inactive towards AOR and shows very poor HER activity. Through combined experimental results and theoretical calculations, it is found that the superior AOR and HER activities are attributed to the increased active sites, the introduction of oxygen vacancies, the synergistic effect of B‐site cations and the different active sites in LNCO55‐Ar. At 1.23 V, the assembled SAE demonstrates ≈100% removal efficiency in 2210 ppm ammonia solution and >70% in real landfill leachate. This work opens the door for developments towards bifunctional catalysts, and also takes a profound step towards the development of low‐costing and simple device configuration for ammonia electrolysers

The macroeconomic effects of Basel III regulations with endogenous credit and money creation

When banks create credit and money endogenously, how do Basel III regulations affect the macroeconomy? This study develops a simple monetary circuit model based on the stock-flow consistent framework. It analytically solves for the equilibrium where banks comply with the capital adequacy ratio or net stable funding ratio. The growth rates can decompose into the money creation processes. The primary component is lending, which depends on bank spreads (or profitability) and regulatory rules. Moreover, this study reveals a channel through which credit and money creation affect economic growth. Debt ratios of firms are related to their animal spirits and the economy’s growth rates, and this relationship implies conditions for firms using debt and going bankrupt. Finally, results reveal that regulations can transfer risk from banks to firms. These findings shed new light on banks’ macroeconomic roles and the effects of bank regulations

Bank equity, interest payments, and credit creation under Basel III regulations

Both equity and regulation play key roles in determining the ability of credit creation of banks. The equity endogenously varies while the regulations are exogenously imposed. I propose a banking model to investigate how the changes in bank equity due to interest receipt and expenditure affect credit and money creation under the Basel III regulations. Three Basel III regulations are discussed: the capital adequacy ratio, liquidity coverage ratio, and net stable funding ratio. The effects on credit creation are demonstrated by the changes in the credit supply in response to the interest payments changing the equity. My results indicate that the changes in equity cause multiplier effects on the credit supply. The multipliers depend on the regulatory constraints. Similarly, I present the impacts on money creation, given by the multiplier effects on the money supply. This study sheds considerable light on how bank equity and Basel III regulations affect credit and money creation

A balance sheet analysis of monetary policy effects on banks

Monetary policy operations affect bank balance sheets (BBSs). This study develops a balance sheet model to examine the impacts of monetary policy operations on banks’ ability to supply funds. That ability is assessed using the balance sheet capacities provided by regulatory risk management instruments. The balance sheet approach views a monetary policy operation as a transaction between the central bank and a commercial bank, modeling the transaction as multiple changes to the BBS. This study identifies and distinguishes the effects of multiple changes in the BBS on balance sheet capacity. A balance sheet change resulting from a monetary policy operation may positively or negatively affect balance sheet capacity. Thus, a monetary policy may have a positive and a negative effect simultaneously. Positive (negative) effects result from balance sheet changes that reduce (increase) bank risks, as measured by regulations. As regulatory stringency decreases, the positive effects increase, whereas the negative effects remain unchanged. A BBS capacity channel of monetary policy is also shown