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Dawid Żochowski

Specialised Institutions & LSIs

Division

Systemic & International Banks 2

Current Position

Head of Section

Fields of interest

Macroeconomics and Monetary Economics,International Economics,Financial Economics

Email

Dawid.Zochowski@ecb.europa.eu

Other current responsibilities
2014-

International Banking Research Network

2014-

American Economic Association

Education
2015

Yale Program on Financial Stability, Yale School of Management

2005

PhD in Economics, Warsaw School of Economics, 2005

Professional experience
2018-2018

Adviser, Stress Test Modelling Division

2014-2018

Principal Financial Stability Expert, Macro-Financial Linkages Division

2013-2014

Senior Economist, Financial Research Division

2010-2013

ECB Troika Financial Sector Team

2007-2013

Senior Financial Stability Expert, Financial Stability Division

2003-2006

Principal Economist, National Bank of Poland

Teaching experience
2001-2011

Associate Professor, Warsaw School of Economics

11 October 2013
OCCASIONAL PAPER SERIES - No. 152
Details
Abstract
The use of macro stress tests to assess bank solvency has developed rapidly over the past few years. This development was reinforced by the financial crisis, which resulted in substantial losses for banks and created general uncertainty about the banking sector's loss-bearing capacity. Macro stress testing has proved a useful instrument to help identify potential vulnerabilities within the banking sector and to gauge its resilience to adverse developments. To support its contribution to safeguarding financial stability and its financial sector-related work in the context of EU/IMF Financial Assistance Programmes, and looking ahead to the establishment of the Single Supervisory Mechanism (SSM), the ECB has developed a top-down macro stress testing framework that is used regularly for forward-looking bank solvency assessments. This paper comprehensively presents the main features of this framework and illustrates how it can be employed for various policy analysis purposes.
JEL Code
C53 : Mathematical and Quantitative Methods→Econometric Modeling→Forecasting and Prediction Methods, Simulation Methods
D85 : Microeconomics→Information, Knowledge, and Uncertainty→Network Formation and Analysis: Theory
E37 : Macroeconomics and Monetary Economics→Prices, Business Fluctuations, and Cycles→Forecasting and Simulation: Models and Applications
E44 : Macroeconomics and Monetary Economics→Money and Interest Rates→Financial Markets and the Macroeconomy
E47 : Macroeconomics and Monetary Economics→Money and Interest Rates→Forecasting and Simulation: Models and Applications
E58 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit→Central Banks and Their Policies
G01 : Financial Economics→General→Financial Crises
G21 : Financial Economics→Financial Institutions and Services→Banks, Depository Institutions, Micro Finance Institutions, Mortgages
G28 : Financial Economics→Financial Institutions and Services→Government Policy and Regulation
22 October 2014
WORKING PAPER SERIES - No. 1737
Details
Abstract
We propose a novel framework to identify distressed households by taking account of both the solvency and the liquidity situation of an individual household. Using the data from the Household Finance and Consumption Survey and the country-level data on non-performing loans we calibrate our metric of distress and estimate stress-test elasticities in response to an interest rate shock, an income shock and a house price shock. We find that, albeit euro area households are relatively resilient as a whole, there are large discrepancies in the impact of macroeconomic shocks across countries. Furthermore, while losses given default as calculated using our framework are low, they are sensitive to house prices changes. Hence, any factors hindering the seizure of the collateral or lowering its value, such as inefficient legal systems, moratoria on foreclosures or bottlenecks in judicial procedures may significantly increase losses facing banks. Finally, we demonstrate that our framework could be used for macroprudential purposes, in particular for the calibration of country level loan-to-value ratio caps.
JEL Code
D10 : Microeconomics→Household Behavior and Family Economics→General
D14 : Microeconomics→Household Behavior and Family Economics→Household Saving; Personal Finance
G21 : Financial Economics→Financial Institutions and Services→Banks, Depository Institutions, Micro Finance Institutions, Mortgages
Network
Household Finance and Consumption Network (HFCN)
28 May 2015
FINANCIAL STABILITY REVIEW - ARTICLE
Financial Stability Review Issue 1, 2015
Details
Abstract
Macro-prudential measures implemented in individual Member States may have cross-border or cross-sectoral repercussions. This special feature discusses cross-border spillover channels. To limit negative spillover effects, macro-prudential instruments should be applied consistently across countries, and reciprocity agreements must be applied transparently.
JEL Code
G00 : Financial Economics→General→General
8 March 2016
WORKING PAPER SERIES - No. 1888
Details
Abstract
We develop a Mixed-Cross-Section Global Vector Autoregressive (MCS-GVAR) model for the 28 EU economies and a sample of individual banking groups to study the propagation of bank capital shocks to the economy. We conduct various simulations with the model to assess how capital ratio shocks influence bank credit supply and aggregate demand. We distinguish between contractionary and expansionary deleveraging scenarios and confirm the intuitive result that only when banks choose to achieve higher capital ratios by shrinking their balance sheets would economic activity be at risk to contract. The model can be used to establish ranges of impact estimates for capital-related macroprudential policy measures, including counter-cyclical capital buffers, systemic risk buffers, G-SIB buffers, etc., also with a view to assessing the cross-country spillover effects of such policy measures. We highlight the importance for macroprudential policy makers to give clear guidance to banks as to how certain macroprudential policy measures should be implemented
JEL Code
C33 : Mathematical and Quantitative Methods→Multiple or Simultaneous Equation Models, Multiple Variables→Panel Data Models, Spatio-temporal Models
E51 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit→Money Supply, Credit, Money Multipliers
E58 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit→Central Banks and Their Policies
25 August 2016
WORKING PAPER SERIES - No. 1943
Details
Abstract
Why did the shadow banking sectors in the US and the euro area expand in the decade before the financial crisis and what are the implications for systemic risk and macro-prudential policy? This paper examines these issues with a model of the financial sector where the size of the shadow banking sector is endogenous. In the model, shadow banking is an alternative banking strategy which involves greater risk-taking at the expense of being exposed to "fundamental runs" on the funding side. When such runs occur, shadow banks liquidate their assets in a secondary market. Entry into shadow banking is profitable when traditional banks provide sufficient secondary market demand to prevent these liquidations from causing a fire-sale. During periods of stability, the shadow banking sector expands to an excessively large size that ferments systemic risk. Its collapse then triggers a fire-sale that renders traditional banks vulnerable to "liquidity runs". The prospect of liquidity runs undermines market discipline and increases the risk-taking incentives of traditional banks. Policy interventions aimed at alleviating the fire-sale fuel further expansion of the shadow banking sector. Financial stability is achieved with a Pigouvian tax on shadow bank profits.
JEL Code
E44 : Macroeconomics and Monetary Economics→Money and Interest Rates→Financial Markets and the Macroeconomy
G01 : Financial Economics→General→Financial Crises
G11 : Financial Economics→General Financial Markets→Portfolio Choice, Investment Decisions
G21 : Financial Economics→Financial Institutions and Services→Banks, Depository Institutions, Micro Finance Institutions, Mortgages
G28 : Financial Economics→Financial Institutions and Services→Government Policy and Regulation
24 May 2017
WORKING PAPER SERIES - No. 2068
Details
Abstract
The Great Recession has been characterised by the two stylized facts: the buildup of leverage in the household sector in the period preceding the recession and a protracted economic recovery that followed. We attempt to explain these two facts as an information friction, whereby agents are uncertain about a new state of the economy following a financial innovation. To this end, we extend Boz and Mendoza (2014) by explicitly modelling the credit markets and by modifying the learning to an adaptive set-up. In our model the build-up of leverage and the collateral price cycles takes longer than in a stylized DSGE model with financial frictions. The boom-bust cycles occur as rare events, with two systemic crises per century. Financial stability is achieved with an LTV-cap regulation which smooths the leverage cycles through quantity (higher equity participation requirement) and price (lower collateral value) effects, as well as by providing an anchor in the learning process of agents.
JEL Code
G14 : Financial Economics→General Financial Markets→Information and Market Efficiency, Event Studies, Insider Trading
G17 : Financial Economics→General Financial Markets→Financial Forecasting and Simulation
G21 : Financial Economics→Financial Institutions and Services→Banks, Depository Institutions, Micro Finance Institutions, Mortgages
G32 : Financial Economics→Corporate Finance and Governance→Financing Policy, Financial Risk and Risk Management, Capital and Ownership Structure, Value of Firms, Goodwill
E44 : Macroeconomics and Monetary Economics→Money and Interest Rates→Financial Markets and the Macroeconomy
E58 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit→Central Banks and Their Policies
9 June 2017
WORKING PAPER SERIES - No. 46
Details
Abstract
We develop an agent based model of traditional banks and asset managers. Our aim is to investigate the channels of contagion of shocks to asset prices within and between the two financial sectors, including the effects of fire sales and their impact on financial institutions’ balance sheets. We take a structural approach to the price formation mechanism as in Bluhm, Faia and Kranen (2014) and introduce a clearing mechanism with an endogenous formation of asset prices. Both types of institutions hold liquid and illiquid assets and are funded via equity and deposits. Traditional banks are interconnected in the money market via mutual interbank claims, where the rate of return is endogenously determined through a tatonnement process. We show how in such a set-up an initial exogenous liquidity shock may lead to a fire-sale spiral. Banks, which are subject to capital and liquidity requirements, may be forced to sell an illiquid security, which impacts its, endogenously determined, market price. As the price of the security decreases, both agents update their equity and adjust their balance sheets by making decisions on whether to sell or buy the security. This endogenous process may trigger a cascade of sales leading to a fire-sale. We find that, first, mixed portfolios banks act as plague-spreader in a context of financial distress. Second, higher bank capital requirements may aggravate contagion since they may incentivise banks to hold similar assets, and choose mixed portfolios business model which is also characterized by lower levels of voluntary capital buffer. Third, asset managers absorb small liquidity shocks but they exacerbate contagion when liquid buffers are fully utilised.
JEL Code
C63 : Mathematical and Quantitative Methods→Mathematical Methods, Programming Models, Mathematical and Simulation Modeling→Computational Techniques, Simulation Modeling
D85 : Microeconomics→Information, Knowledge, and Uncertainty→Network Formation and Analysis: Theory
G21 : Financial Economics→Financial Institutions and Services→Banks, Depository Institutions, Micro Finance Institutions, Mortgages
G23 : Financial Economics→Financial Institutions and Services→Non-bank Financial Institutions, Financial Instruments, Institutional Investors
13 November 2017
WORKING PAPER SERIES - No. 2109
Details
Abstract
We use a confidential euro area bank-level data set of close to 250 banks to assess outward and inward spillovers of unconventional monetary policies on bank lending. We find that euro area banks increase lending to the rest of the world in response to non-standard ECB monetary policy accommodation. We also find strong evidence that euro area banks increase lending to the domestic non-financial private sector in response to accommodative unconventional monetary policy measures in the US. Inward and outward spillovers are substantially stronger for euro area banks which are liquidity constrained and which rely more on internal capital markets. This suggests that bank-specific supply effects, stemming from banks’ increased ability to lend following a central bank balance sheet expansion, are a major driver of monetary policy spillovers, providing strong support to the existence of an international bank lending channel that prevails at the effective lower bound.
JEL Code
E44 : Macroeconomics and Monetary Economics→Money and Interest Rates→Financial Markets and the Macroeconomy
E52 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit→Monetary Policy
G01 : Financial Economics→General→Financial Crises
4 December 2017
WORKING PAPER SERIES - No. 2114
Details
Abstract
We study a quantitative DSGE model linking a state of the art asset pricing framework a la Kung and Schmid (2015) with a constraint on leverage as in Gertler and Kiyotaki a (2010). We show that a mere increase in the probability of firms being financially constrained leads to an increase in risk premia. Even for a small adverse shock to productivity a drop in asset valuation restrains firms from outside financing and by that induces a persistent low growth environment. In our framework a constraint on leverage induces countercyclical risk premia in equity markets even when it does not bind.
JEL Code
D53 : Microeconomics→General Equilibrium and Disequilibrium→Financial Markets
G01 : Financial Economics→General→Financial Crises
G12 : Financial Economics→General Financial Markets→Asset Pricing, Trading Volume, Bond Interest Rates
24 May 2018
FINANCIAL STABILITY REVIEW - ARTICLE
Financial Stability Review Issue 1, 2018
Details
Abstract
The real economy repercussions of financial crises are the ultimate focus of financial stability monitoring and policymakers. By extending a standard set of financial stability indicators with indicators capturing spillover and contagion risks, this special feature proposes a financial stability risk index (FSRI) that has predictive power for the near-term risk of deep recessions. It is shown that the empirical performance of the index benefits from combining a large set of macro-financial indicators and, notably, that the information content of the spillover and contagion risk indicators is important.
JEL Code
G00 : Financial Economics→General→General
23 May 2019
WORKING PAPER SERIES - No. 2285
Details
Abstract
We analyse the cross-border propagation of prudential regulation in the euro area. Using the Prudential Instruments Database (Cerutti et al., 2017b) and a unique confidential database on balance sheets items of euro-area financial institutions we estimate panel models for 248 banks from 16 euro-area countries. We find that domestic banks reduce lending after the tightening of capital requirements in other countries, while they increase lending when loan-to-value (LTV) limits or reserve requirements are tightened abroad. We also find that foreign affiliates increase lending following the tightening of sector-specific capital buffers in the countries where their parent banks reside and that bank size and liquidity play a role in determining the magnitude of cross-border spillovers.
JEL Code
G21 : Financial Economics→Financial Institutions and Services→Banks, Depository Institutions, Micro Finance Institutions, Mortgages
F34 : International Economics→International Finance→International Lending and Debt Problems
F36 : International Economics→International Finance→Financial Aspects of Economic Integration
8 January 2020
WORKING PAPER SERIES - No. 2356
Details
Abstract
This paper investigates the relationship between bank funding costs and solvency for a large sample of euro area banks using two proprietary ECB datasets for both wholesale funding costs and deposit rates. In particular, the paper studies the relationship between bank solvency, on the one hand, and senior bond yields, term deposit rates and overnight deposit rates, on the other. The analysis finds a significant negative relationship between bank solvency and the different types of funding costs. It also shows that this relationship is non-linear, namely convex, for senior bond yields and term deposit rates. It also identifies a positive realistic solvency threshold beyond which the effect of an increase in solvency on senior bond yields becomes positive. The paper also finds that senior bond yields are more sensitive to a change in solvency than deposit rates. Among the deposit rates, the interest rates of the overnight deposits are the least sensitive. Banks' asset quality, profitability and liquidity seem to play only a minor role in driving funding costs while the ECB monetary policy stance, sovereign risk and financial markets uncertainty appear to be material drivers.
JEL Code
G15 : Financial Economics→General Financial Markets→International Financial Markets
G21 : Financial Economics→Financial Institutions and Services→Banks, Depository Institutions, Micro Finance Institutions, Mortgages
18 February 2020
WORKING PAPER SERIES - No. 2373
Details
Abstract
We develop an agent-based model of traditional banks and asset managers to investigate the contagion risk related to fire sales and balance sheet interactions. We take a structural approach to the price formation in fire sales as in Bluhm et al. (2014) and introduce a market clearing mechanism with endogenous formation of asset prices. We find that, first, banks which are active in both the interbank and securities markets may channel financial distress between the two markets. Second, while higher bank capital requirements decrease default risk and funding costs, they make it also more profitable to invest into less-liquid assets financed by interbank borrowing. Third, asset managers absorb small liquidity shocks, but they exacerbate contagion when their voluntary liquid buffers are fully utilised. Fourth, a system with larger and more interconnected agents is more prone to contagion risk stemming from funding shocks.
JEL Code
C6 : Mathematical and Quantitative Methods→Mathematical Methods, Programming Models, Mathematical and Simulation Modeling
G21 : Financial Economics→Financial Institutions and Services→Banks, Depository Institutions, Micro Finance Institutions, Mortgages
G23 : Financial Economics→Financial Institutions and Services→Non-bank Financial Institutions, Financial Instruments, Institutional Investors
2021
The European Journal of Finance
Bank funding costs and solvency
  • Guillaume Arnould, Giuseppe Avignone, Cosimo Pancaro, Dawid Żochowski
2021
Journal of Financial Stability
  • Fabio Franch, Luca Nocciola, Dawid Żochowski
2019
Journal of Banking & Finance
  • Susanna Calimania, Grzegorz Hałaj, Dawid Żochowski
2018
Financial Stability Review, vol. 1, May
  • Andrea Deghi, Peter Welz, Dawid Żochowski
2017
Macroprudential Bulletin, Vol. 3
  • Harun Mirza, Dawid Żochowski
2016
Journal of Financial Stability
  • Miguel Ampudia, Has van Vlokhoven, Dawid Żochowski
2015
Financial Stability Review, Vol. 1, May
  • Stephan Fahr, Dawid Żochowski
2011
Papers and studies of Research Institute for Economic Development, vol. 86(2), pages 185-199
  • Piotr Białowolski, Dawid Żochowski, Piotr Zwiernik
2009
Financial Theory and Practice, vol. 33(2), pages 153-186
  • Grzegorz Halaj, Dawid Żochowski
2017
European Central Bank
  • [editors] Stéphane Dees, Jérôme Henry, Reiner Martin
2016
BIS Papers chapters: Macroprudential policy, volume 86, pages 45-48, BIS
  • Luca Nocciola, Dawid Żochowski
2007
IFC Bulletins chapters, 30-31 August 2006 - Volume 2, volume 26, pages 62-74 Bank for International Settlements
  • Sławomir Zajączkowski, Dawid Żochowski
2006
BIS Papers chapters, volume 28, pages 313-25 Bank for International Settlements
  • Jerzy Pruski, Dawid Żochowski