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Linda Fache Rousová

5 August 2021
ECONOMIC BULLETIN - BOX
Economic Bulletin Issue 5, 2021
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Abstract
This box studies the potential consequences of the ongoing shift away from defined benefit (DB) towards defined contribution (DC) products in the insurance and pension fund (ICPF) sector. In view of the different risks associated with these products, their portfolio allocations differ, with DB products being more heavily invested in long-duration fixed-income assets. Given the sizeable amount of ICPFs’ assets under management, the move from DB to DC products can reduce the demand for these assets, potentially having profound effects on the financial system and the economy. Such effects may include a steeper yield curve, a boost to equity financing, and more uncertainty in the build-up of retirement savings.
JEL Code
G22 : Financial Economics→Financial Institutions and Services→Insurance, Insurance Companies, Actuarial Studies
G23 : Financial Economics→Financial Institutions and Services→Non-bank Financial Institutions, Financial Instruments, Institutional Investors
H55 : Public Economics→National Government Expenditures and Related Policies→Social Security and Public Pensions
E34 : Macroeconomics and Monetary Economics→Prices, Business Fluctuations, and Cycles
E44 : Macroeconomics and Monetary Economics→Money and Interest Rates→Financial Markets and the Macroeconomy
19 May 2021
FINANCIAL STABILITY REVIEW - BOX
Financial Stability Review Issue 1, 2021
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Abstract
During the March 2020 market turmoil, investment funds shed assets on a large scale. But was this selling commensurate with the outflows they faced or was it much larger? This box finds evidence for the latter, highlighting that the less regulated non-UCITS funds tended to engage in more procyclical selling and cash hording than UCITS funds. While it can be rational for fund managers individually to sell assets in excess of current outflows when uncertainty about future redemptions is high, such cash hoarding can be detrimental to the stability of financial markets from a macroprudential perspective. The findings discussed in this box suggest that macroprudential regulation of the fund sector could help to mitigate procyclical behaviour.
JEL Code
G11 : Financial Economics→General Financial Markets→Portfolio Choice, Investment Decisions
G15 : Financial Economics→General Financial Markets→International Financial Markets
G23 : Financial Economics→Financial Institutions and Services→Non-bank Financial Institutions, Financial Instruments, Institutional Investors
25 November 2020
FINANCIAL STABILITY REVIEW - BOX
Financial Stability Review Issue 2, 2020
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Abstract
In the most turbulent week during the coronavirus-related market turmoil in March 2020, euro-denominated money market funds experienced very high outflows. But which investors withdrew from these funds and why did they do so? This box suggests that the increase in variation margin on derivatives contracts held by euro area insurance corporations and pension funds was one of the key drivers behind these outflows.
JEL Code
G01 : Financial Economics→General→Financial Crises
G22 : Financial Economics→Financial Institutions and Services→Insurance, Insurance Companies, Actuarial Studies
G23 : Financial Economics→Financial Institutions and Services→Non-bank Financial Institutions, Financial Instruments, Institutional Investors
G15 : Financial Economics→General Financial Markets→International Financial Markets
26 May 2020
FINANCIAL STABILITY REVIEW - ARTICLE
Financial Stability Review Issue 1, 2020
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Abstract
Stricter margining requirements for derivative positions have increased the demand for collateral by market participants in recent years. At the same time, euro area investment funds which use derivatives extensively have been reducing their liquid asset holdings. Using transaction-by-transaction derivatives data, this special feature assesses whether the current levels of funds’ holdings of cash and other highly liquid assets would be adequate to meet funds’ liquidity needs to cover variation margin calls on derivatives during stressed market periods, once the derivative portfolios become fully collateralised. The evidence so far indicates that euro area funds were able to meet the fivefold increase in variation margin during the height of the coronavirus-related market stress. But some of them were likely to have done so by engaging in repo transactions, selling assets and drawing on credit lines, thus amplifying the recent market dynamics.
23 September 2019
ECONOMIC BULLETIN - ARTICLE
Economic Bulletin Issue 6, 2019
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Abstract
Data on derivatives transactions have recently become available at a number of central banks, including the ECB, and have opened up new avenues for analysis. Collected as a result of reforms of the over-the-counter (OTC) derivatives market, which were primarily designed to counter systemic risk, the data have numerous applications beyond the domain of financial stability. This article presents two such applications. It demonstrates how data gathered under the European Market Infrastructure Regulation (EMIR) can be used to better understand two types of derivatives market that are of particular importance for central bank analysis, namely the interest rate derivatives and inflation-linked swap markets. For the interest rate derivatives market, the article shows how investor expectations for interest rates may be inferred through “positioning indicators” that track how a set of “informed investors” take positions in the market in anticipation of future interest rate movements. Such quantity-based indicators can complement other, more established indicators of interest rate expectations, such as forward rates or survey-based measures. For euro area inflation-linked swap markets, the article exploits the fact that EMIR data allow a first systematic look at trading activity in these markets, which can provide valuable and timely information on investors’ inflation expectations. It highlights a number of structural features of activity in these markets and discusses their possible implications for the monitoring of market-based measures of inflation compensation.
JEL Code
G10 : Financial Economics→General Financial Markets→General
G11 : Financial Economics→General Financial Markets→Portfolio Choice, Investment Decisions
G12 : Financial Economics→General Financial Markets→Asset Pricing, Trading Volume, Bond Interest Rates
29 July 2019
WORKING PAPER SERIES - No. 2299
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Abstract
Traditionally, insurers are seen as stabilisers of financial markets that act countercyclically by buying assets whose price falls. Recent studies challenge this view by providing empirical evidence of procyclicality. This paper sheds new light on the underlying reasons for these opposing views. Our model predicts procyclicality when prices fall due to increasing risk premia, and countercyclicality in response to rises in the risk-free rate. Using granular data on insurers’ government bond holdings, we validate these predictions empirically. Our findings contribute to the current policy discussion on macroprudential measures beyond banking.
JEL Code
G01 : Financial Economics→General→Financial Crises
G11 : Financial Economics→General Financial Markets→Portfolio Choice, Investment Decisions
G12 : Financial Economics→General Financial Markets→Asset Pricing, Trading Volume, Bond Interest Rates
G22 : Financial Economics→Financial Institutions and Services→Insurance, Insurance Companies, Actuarial Studies
G23 : Financial Economics→Financial Institutions and Services→Non-bank Financial Institutions, Financial Instruments, Institutional Investors
29 May 2019
FINANCIAL STABILITY REVIEW - BOX
Financial Stability Review Issue 1, 2019
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Abstract
In the current low interest rate environment, euro area insurers have been venturing into alternative asset classes such as alternative, infrastructure and private equity funds, loans and real estate holdings. This move helps insurers diversify their portfolios. It may also boost their investment returns and limit the duration mismatch in their balance sheets. More broadly, it contributes to the diversification of the financing sources of the real economy (see Chart 4.1). But the portfolio shift towards alternative investments also raises financial stability concerns, which is the focus of this box. In particular, the shift may increase insurers’ credit and liquidity risks and contribute to wider financial sector exuberance in some parts of the real economy as well as amplify market shocks in the event of (abrupt) price corrections.
23 May 2018
STATISTICS PAPER SERIES - No. 28
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Abstract
This paper presents a detailed set of new, quantity-based indicators of financial integration in the euro area. The indicators are based on granular data from securities holdings statistics and help us disentangle the main drivers of the portfolio changes observed since the financial crisis. Three key developments since the crisis stand out. First, we find that financial integration in equity is less than that in the debt market, although the equity market was the main contributor to the partial recovery in financial integration observed since mid-2012. Second, we observe a gradual shift in cross-border investment activity from the banking sector towards other non-bank financial entities. In particular, our results show that euro area banks significantly decreased their investment in debt securities issued by banks in other euro area countries and that this decrease explains around 55% of the decline in financial integration in the debt market observed since the crisis. Finally, we find that the sharp decrease in financial integration between 2009 and 2012 was mainly driven by foreign investor flight from government debt securities, a trend that has since reversed.
JEL Code
F36 : International Economics→International Finance→Financial Aspects of Economic Integration
G1 : Financial Economics→General Financial Markets
G10 : Financial Economics→General Financial Markets→General
G15 : Financial Economics→General Financial Markets→International Financial Markets
22 September 2016
OCCASIONAL PAPER SERIES - No. 11
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Abstract
Policy is only as good as the information at the disposal of policymakers. Few moments illustrate this better than the uncertainty before and after the default of Lehman Brothers and the subsequent decision to stand behind AIG. Authorities were forced to make critical policy decisions, despite being uncertain about counterparties’ exposures and the protection sold against their default. Opacity has been a defining characteristic of over-the-counter derivatives markets – to the extent that they have been labelled “dark markets” (Duffie, 2012). Motivated by the concern that opacity exercerbates crises, the G20 leaders made a decisive push in 2009 for greater transparency in derivatives markets. In Europe, this initiative was formalised in 2012 in the European Markets Infrastructure Regulation (EMIR), which requires EU entities engaging in derivatives transactions to report them to trade repositories authorised by the European Securities Markets Authority (ESMA). Derivatives markets are thus in the process of becoming one of the most transparent markets for regulators. This paper represents a first analysis of the EU-wide data collected under EMIR. We start by describing the structure of the dataset, drawing comparisons with existing survey-based evidence on derivatives markets. The rest of the paper is divided into three sections, focusing on the three largest derivatives markets (interest rates, foreign exchange and credit).
JEL Code
G15 : Financial Economics→General Financial Markets→International Financial Markets
G18 : Financial Economics→General Financial Markets→Government Policy and Regulation
25 November 2015
FINANCIAL STABILITY REVIEW - ARTICLE
Financial Stability Review Issue 2, 2015
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Abstract
This special feature proposes a methodology to measure systemic risk as the percentage of banks defaulting simultaneously over a given time horizon for a given confidence level. The framework presented here is applied to euro area banks. It is observed that since the announcement of the comprehensive assessment in October 2013 banks have significantly reshuffled their security portfolios. This has resulted in a decline in the probability of systemic events occurring.
JEL Code
G00 : Financial Economics→General→General