How liquid are banks : some evidence from the United Kingdom

This paper uses quantitative balance sheet liquidity analysis, based upon modified versions of the BCBS 1 and Moody’s 2 models, to provide indicators which would alarm the UK banks’ short and long-term liquidity positions respectively. These information will also underpin other research related liquidity risk to banks’ lending and performance. Our framework accurately reflect UK banks’ liquidity positions under both normal and stress scenarios based on the consistent accounting information under IFRS. It has significant contribution on Basel III liquidity ratios calculation. The study also presents fundamental financial information to facilitate analysis of banks’ business models and funding strategies. Using data for the period 2005-2010, we provide evidence that there have been variable liquidity strains across the UK banks in our sample. The estimated results show that Barclays Bank was the only bank to maintain a healthy short-term liquidity position throughout the sample period; while HSBC remained liquid in the short term, in both normal and stress conditions, except in 2008 and 2010. RBS, meanwhile, maintained healthy long-term liquidity positions from 2008 after receiving government injections of capital. And Santander UK was also able to post healthy long-term liquidity positions, except in 2009. However, the other four banks, the Bank of Scotland, Lloyds TSB, Natwest, and Standard Chartered, proved illiquid, on both a short-term and long-term basis, throughout the six-year period, with Natwest being by far the worst performer

A global bond: Explaining the safe-haven status of US Treasury securities

This article offers new theoretical and empirical insights to explain the resilience of US Treasury securities as the world’s premier safe or “risk-free” asset. The standard explanation of resilience emphasizes the relative safety of US Treasuries due to a shortage of safe assets in the global political economy. The analysis here goes beyond the standard explanation to highlight the importance of domestic politics in reinforcing the safe status of US Treasury securities. In particular, the research shows how a formidable “bond” of interests unites domestic and foreign owners of the public debt and works to sustain US power in global finance. Foreigners, who now own roughly half of the US public debt, have something to gain from their domestic counterparts. The top 1% of US households, which dominate domestic ownership of US Treasuries, has considerable political clout, thus alleviating foreign concerns about the creditworthiness of the US federal government. Domestic owners, in turn, benefit from the seemingly insatiable foreign appetite for US Treasury securities. In supplying the US federal government and US households with cheap credit, foreign investors in US Treasuries help to deflect challenges to the top 1% within the wealth and income hierarchy

Non-performing loans at the dawn of IFRS 9: regulatory and accounting treatment of asset quality

Asset quality is a key indicator of sound banking. However, it is difficult for banking regulators and investors to assess it in the absence of a common, cross-border scheme to classify assets. Currently no standard is applied universally to categorise loans, the most sizeable asset on banks’ balance sheets. As a corollary, definitions of nonperforming loans (NPLs), despite recent steps towards greater harmonisation, continue to vary between jurisdictions. This paper offers a comprehensive analysis of NPLs and considers variations in the treatment of NPLs across countries, accounting regimes, and firms. The paper relies on a multi-disciplinary perspective and addresses legal, accounting, economic and strategic aspects of loan loss provisioning (LLP) and NPLs. A harmonised approach to NPL recognition is particularly desirable, in view of the fact that IFRS 9, the new accounting standard on loan loss provisioning, will be mandatory from January 2018. IFRS 9 changes the relationship between NPLs and provisions, by relying on greater judgement to determine provisions. The potential for divergence makes the need for comparable indicators against which to assess asset quality all the greater

Macro-financial linkages and bank behaviour: evidence from the second-round effects of the global financial crisis on East Asia

This paper studies the link between macro-financial variability and bank behaviour, which justifies the second-round effects of the global financial crisis on East Asia. Following Gallego et al. (The impact of the global economic and financial crisis on Central Eastern and South Eastern Europe (CESEE) and Latin America, 2010), the second round effects are defined as the adverse feedback loop from the slumps in economic activities and sharp financial market deterioration, which may influence the financial performance of bank, inter alia via deteriorating credit quality, declining profitability and increasing problems in retaining necessary capitalization. Differentiating itself from other research, this study stresses adjustments in four dimensions of bank performance and behaviour: asset quality, profitability, capital adequacy, and lending behaviour, assuming that any change in a bank-specific characteristic is induced by endogenous adjustments of the others. The empirical results based on partial adjustment models and two-step system GMM estimation show that bank’s adjustment behaviour is subject to the variation in the macro-financial environment and the stress condition in the global financial market. There is no convincing evidence to support the effectiveness of policy rate cut to boots bank lending and to avoid a financial accelerator effect

Financial wellbeing of Asian Americans

The Asian American population in the United States has been increasing. Research on the economic wellbeing of this minority group is far from being adequate. It is generally found that Asian Americans are more highly educated and have more wealth. Although the homeownership rate of this population is lower than the national average rate, the gap is gradually narrowing. Asian Americans are found to have more confidence in their financial future and have better management in their financial lives. In addition, Asian-owned businesses have been an important part of the U.S. economy and, as such, the self-employment status of Asian Americans has stimulated great interest for research. Large differences in financial behaviors exist among different groups in Asian Americans. This chapter serves the purpose to summarize past research on Asian American consumer finances and provide directions for future research.Includes bibliographical references

Introduction: new research in monetary history - A map

This handbook aims to provide a comprehensive (though obviously not exhaustive) picture of state-of-the-art international scholarship on the history of money and currency. The chapters of this handbook cover a wide selection of research topics. They span chronologically from antiquity to nowadays and are geographically stretched from Latin America to Asia, although most of them focus on Western Europe and the USA, as a large part of the existing research does. The authors of these chapters constitute, we hope, a balanced sample of various generations of scholars who contributed to what Barry Eichengreen defined as "the new monetary and financial history" – an approach that combines the analysis of monetary aggregates and policies with the structure and dynamics of the banking sector and financial markets. We have structured this handbook in ten broad thematic parts: the historical origins of money; money, coinage, and the state; trade, money markets, and international currencies; money and metals; monetary experiments; Asian monetary systems; exchange rate regimes; monetary integration; central banking and monetary policy; and aggregate price shocks. In this introduction, we offer for each part some historical context, a few key insights from the literature, and a brief analytical summary of each chapter. Our aim is to draw a map that hopefully will help readers to organize their journey through this very wide and diverse research area

Interbank borrowing and lending between financially constrained banks

Some stylized facts about transactions among banks are not easily reconciled with coinsurance of short-term liquidity risks. In our model, interbank markets play a different role. We argue that lending to another bank can reduce a bank’s overall portfolio risk through diversification. If insolvency is costly, this diversification improves the interbank lender's funding liquidity, boosting credit supply to nonbanks. However, diversification comes at an endogenous cost that depends on bank-specific factors of interbank borrower and lender. The model provides a framework for understanding the importance of interbank lending for aggregate credit supply and the stability of banking systems. The model’s predictions are consistent with evidence documented in the literature that other theories cannot consistently explain