Euro Area Market Reactions to the Monetary Developments Press Release.

Using intra-day data, we assess the impact of the press release on euro area monetary data on the different segments of the euro area yield curve. For this purpose, we estimate a relation between the "news" or "surprise" in the released data for annual M3 growth and the move in the interest rates for a time-window surrounding the press release. We find that the publication of monetary data has a statistically significant impact on interest rates with maturities ranging from 1 to 10 years, with the largest effect on the 1-2 year segment. Turning to the short end of the yield curve, since mid-2001 rates with maturities up to 6 months do not react much to the monetary developments press release. Our results suggest that market participants may look through short-term movements of annual M3 growth and focus instead on the trend rate of monetary expansion over the medium term when gauging the policy relevant signals.High-frequency data ; Macroeconomic announcements ; Money growth.

Stress testing banks' profitability: the case of French banks

We build a stress testing framework to evaluate the sensitivity of banks’ profitability to plausible but severe adverse macroeconomic shocks. Specifically, we test the resilience of French banks using supervisory data over the period 1993-2009. First, we identify the macroeconomic and financial variables (GDP growth, interest rate maturity spread, stock market’s volatility) and bank-specific variables (size, capital ratio, ratio of non interest income to assets) that significantly affect French banks’ profitability. Second, our macroeconomic stress testing exercises based on a simulation of macroeconomic variables show that French banks’ profitability is resilient to major adverse macroeconomic scenarios. Specifically, our findings highlight that even severe recessions would leave the French banking system profitable.bank profitability, dynamic panel estimation, stress test.

Predicting Financial Distress in a High-Stress Financial World: The Role of Option Prices as Bank Risk Metrics

The current financial crisis offers a unique opportunity to investigate the leading properties of market indicators in a stressed environment and their usefulness from a banking supervision perspective. One pool of relevant information that has been little explored in the empirical literature is the market for bank’s exchange-traded option contracts. In this paper, we first extract implied volatility indicators from the prices of the most actively traded option contracts on financial firms’ equity. We then examine empirically their ability to predict financial distress by applying survival analysis techniques to a sample of large US financial firms. We find that market indicators extracted from option prices significantly explain the survival time of troubled financial firms and do a better job in predicting financial distress than other time-varying covariates typically included in bank failure models. Overall, both accounting information and option prices contain useful information of subsequent financial problems and, more importantly, the combination produces good forecasts in a high-stress financial world, full of doubts and uncertainties.Financial distress; Financial system oversight; Market discipline; Options; Implied volatility; Survival analysis.

Stress testing French banks' income subcomponents

Using a broad dataset of individual consolidated data of French banks over the period 1993-2007, we seek to evaluate the sensitivity to adverse macroeconomic scenarios of the three main sources of banking income, namely interest margins, fees and commissions, and trading income. First, we show that the determinants of banking income subcomponents are highly specific: whereas interest rates spread plays a significant role in determining net interest income, stock market measures are significant determinants of trading income. GDP growth impacts significantly on fees and commissions. Second, our macroeconomic stress testing exercises tend to show that fees and commission and to a lesser extent trading incomes are much more sensitive to some adverse macroeconomic shocks than interest income. This could support the view that income diversification is associated with higher banking revenue resilience.Banking income , Interest margins , Fees and commissions , Trading income , Dynamic panel estimation.

La prévision des taux d’intérêt à partir de contrats futures : l’apport de variables économiques et financières

Monetary Policy ; Interest Rate Forecast ; Futures Contracts ; Forecast Error ; Risk Premia.

Two-way interplays between capital buffers, credit and output: evidence from French banks

We assess the extent to which capital buffers (the capital banks hold in excess of the regulatory minimum) exacerbate rather than reduce the cyclical behavior of credit. We empirically study the relationships between output gap, capital buffers and loan growth with firm-level data for French banks over the period 1993—2009. Our findings reveal that bank capital buffers intensify the cyclical credit fluctuations arising from the output gap developments, all the more as better quality capital is considered. Moreover, by performing Granger causality tests at the bank level, we find evidence of a two-way causality between capital buffers and loan growth, pointing to mutually reinforcing mechanisms. Overall, those empirical results lend support to a countercyclical financial regulation that focuses on highest-quality capital and aims at smoothing loan growth.Bank Capital Regulation, Procyclicality, Capital Buffers, Business Cycle Fluctuations, Basel III.

Une évaluation structurelle du ratio de sacrifice dans la zone euro.

In this paper, we seek to estimate the sacrifice ratio of the euro area using a small DSGE model where prices and wages are sticky. We estimate model's parameters so as to minimize the distance between VAR-based and model-based covariances of a set of variables. The estimated value of the sacrifice ratio reaches 1.30%. In a second step, we proceed to a set of counterfactual exercises in order to highlight the link between the sacrifice ratio and the degree of prices and wages stickiness. We obtain that a decrease of prices stickiness does not necessary result in a decrease of the sacrifice ratio. In addition, the sacrifice ratio rises with the degree of wage stickiness.Sacrifice ratio ; Sticky prices and sticky wages ; DSGE model.

Estimations du ratio de sacrifice dans la zone euro.

Le ratio de sacrifice de la zone euro est simulé dans le cadre d’une maquette structurelle macroéconomique. Le modèle est utilisé pour analyser l’impact d’une modification du degré de rigidité des salaires sur le ratio.ratio de sacrifice, flexibilité du marché du travail, désinflation.