Bank liquidity creation and risk taking during distress

Liquidity creation is one of banks' raisons d'être. But what happens to liquidity creation and risk taking when a bank is identified as distressed by regulatory bodies and subjected to regulatory interventions and/or receives capital injections? What are the long-run effects of such interventions? To address these questions, we exploit a unique dataset of German universal banks for the period 1999 - 2008. Our main findings are as follows. First, regulatory interventions and capital injections are followed by lower levels of liquidity creation. The probability of a decline in liquidity creation increases to up to around 50 percent when such actions are taken. Second, bank risk taking decreases in the aftermath of regulatory interventions and capital injections. Third, while banks' liquidity creation market shares decline over the five years following such disciplinary measures, they also reduce their risk exposure over this period to become safer banks. --Liquidity creation,bank distress,regulatory interventions,capital injections

Observation of extremely slow hole spin relaxation in self-assembled quantum dots

We report the measurement of extremely slow hole spin relaxation dynamics in small ensembles of self-assembled InGaAs quantum dots. Individual spin orientated holes are optically created in the lowest orbital state of each dot and read out after a defined storage time using spin memory devices. The resulting luminescence signal exhibits a pronounced polarization memory effect that vanishes for long storage times. The hole spin relaxation dynamics are measured as a function of external magnetic field and lattice temperature. We show that hole spin relaxation can occur over remarkably long timescales in strongly confined quantum dots (up to ~270 us), as predicted by recent theory. Our findings are supported by calculations that reproduce both the observed magnetic field and temperature dependencies. The results suggest that hole spin relaxation in strongly confined quantum dots is due to spin orbit mediated phonon scattering between Zeeman levels, in marked contrast to higher dimensional nanostructures where it is limited by valence band mixing.Comment: Published by Physical Review

Bank liquidity creation following regulatory interventions and capital support

We study the effects of regulatory interventions and capital support (bailouts) on banks’ liquidity creation. We rely on instrumental variables to deal with possible endogeneity concerns. Our key findings, which are based on a unique supervisory German dataset, are that regulatory interventions robustly trigger decreases in liquidity creation, while capital support does not affect liquidity creation. Additional results include the effects of these actions on different components of liquidity creation, lending, and risk taking. Our findings provide new and important insights into the debates about the design of regulatory interventions and bailouts

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