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Gyongyi Loranth

28 July 2022
We study supervisory interventions in cross-border banks under different institutionalarchitectures in a model in which a bank may provide voluntary support to animpaired subsidiary using resources from a healthy subsidiary. While supranationalarchitecture permits voluntary support, national architecture gives rise to inefficientring-fencing of a healthy subsidiary when there is high correlation between the subsidiaries’assets. The enhanced cross-subsidiary support allowed by a supranational architectureaffects banks’ risk-taking, leading to a convergence of the default risk amongcross-border banks with heterogeneous fundamentals. Finally, supranational architecturereduces the expected deposit insurance costs for banks with riskier fundamentals,but not for safer banks even when it could still be aggregate welfare improving.
JEL Code
D8 : Microeconomics→Information, Knowledge, and Uncertainty
G11 : Financial Economics→General Financial Markets→Portfolio Choice, Investment Decisions
G2 : Financial Economics→Financial Institutions and Services
ECB Lamfalussy Fellowship Programme
28 February 2011
We test the interest rate sensitivity of sub-prime credit card borrowers using a unique panel data set from a UK credit card company. What is novel about our contribution is that we were given details of a randomized interest rate experiment conducted by the lender between October 2006 and January 2007. We find that individuals who tend to utilize their credit limits fully do not reduce their demand for credit when subject to increases in interest rates as high as 3 percentage points. This finding is naturally interpreted as evidence of binding liquidity constraints. We also demonstrate the importance of truly exogenous variation in interest rates when estimating credit demand elasticities. We show that estimating a standard credit demand equation with non-experimental variation leads to seriously biased estimates even when conditioning on a rich set of controls and individual fixed effects. In particular, this procedure results in a large and statistically significant 3-month elasticity of credit card debt with respect to interest rates even though the experimental estimate of the same elasticity is neither economically nor statistically different from zero.
JEL Code
D11 : Microeconomics→Household Behavior and Family Economics→Consumer Economics: Theory
D12 : Microeconomics→Household Behavior and Family Economics→Consumer Economics: Empirical Analysis
D14 : Microeconomics→Household Behavior and Family Economics→Household Saving; Personal Finance
Conference on household finance and consumption
31 January 2005
This paper examines prudential regulation of a multinational bank (MNB hereafter) and shows how regulatory intervention depends on the liability structure and insurance arrangements for non local depositors (i.e. on the representation form for foreign units). Shared liability among the MNB's units gives higher incentives for regulatory intervention than when units are legally separate entities. Cross-border deposit insurance provides lower incentives to intervene than when the regulator only has to compensate local depositors. We study the impact of shared liability and deposit insurance arrangements on regulators' incentives to monitor and acquire information on MNB's activities. Furthermore, by describing regulatory intervention and monitoring we also draw implications on the MNB's preferences over the form representation for foreign units, and discuss the effects of regulators' behavior on both MNB's lobbying and international resources shifting.
JEL Code
L51 : Industrial Organization→Regulation and Industrial Policy→Economics of Regulation
F23 : International Economics→International Factor Movements and International Business→Multinational Firms, International Business
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
ECB-CFS Research Network on "Capital Markets and Financial Integration in Europe"