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Mariusz Jarmuzek

23 November 2020
FINANCIAL STABILITY REVIEW - BOX
Financial Stability Review Issue 2, 2020
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Abstract
Credit rating downgrades - especially downgrades from investment grade to high yield (“fallen angels”) - can adversely affect the price and ease of a firm’s debt issuance. Such a downgrade can force (institutional) investors to sell securities, as investment mandates may restrict the securities that they are allowed to hold. We find that market repricing does not typically happen instantaneously after a downgrade, but instead over an extended period which preceding the actual downgrade. The impact of sales by institutional investors is softened by differences in the definition of “investment grade” and flexibility in investment funds’ mandates. Fallen angels since February 2020 follow this pattern, but with a swifter and stronger increase in the credit premium before the first downgrade. Securities of pandemic-related fallen angels show some post-event illiquidity which may be explained by the relatively sudden change in the broader economic outlook and wider market stress. Downgrades to below investment grade are typically also associated with lower bond issuance volumes. If a larger cohort of firms were to face funding pressures, this increases their vulnerability to shocks in the near term and, in the long term, could weigh on investment, creating wider macroeconomic costs.
JEL Code
G12 : Financial Economics→General Financial Markets→Asset Pricing, Trading Volume, Bond Interest Rates
G24 : Financial Economics→Financial Institutions and Services→Investment Banking, Venture Capital, Brokerage, Ratings and Ratings Agencies
G32 : Financial Economics→Corporate Finance and Governance→Financing Policy, Financial Risk and Risk Management, Capital and Ownership Structure, Value of Firms, Goodwill
18 May 2021
FINANCIAL STABILITY REVIEW - BOX
Financial Stability Review Issue 1, 2021
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Abstract
Public loan guarantee schemes have been crucial in mitigating financial stability risks during the pandemic. At the same time, these schemes constitute sizeable and novel contingent liabilities for governments in most euro area countries, adding to the stock of both existing government guarantees and other implicit contingent liabilities, which reinforces concerns about the emergence of an adverse sovereign-bank-corporate nexus. More conventional materialisations of contingent liabilities related to implicit commitments towards large corporates and state-owned enterprises have occurred more frequently and have also entailed higher costs in the past and may still occur going forward. This would pose a larger tail risk for sovereigns than their direct exposure through guarantees would suggest. Against this backdrop, this box presents historical evidence from contingent liability materialisations, investigates their commonalities and differences with the situation under the current pandemic-induced shock and assesses the ensuing risk for sovereigns.
JEL Code
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
H81 : Public Economics→Miscellaneous Issues→Governmental Loans, Loan Guarantees, Credits, Grants, Bailouts
28 June 2021
MACROPRUDENTIAL BULLETIN - ARTICLE - No. 13
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Abstract
This contribution reviews historical drivers of bank dividend payouts in the euro area. Economic literature presents three main reasons for adjustments to dividend payouts: asymmetric information between shareholders and management, the presence of agency costs, and regulatory constraints. Using a panel data approach, the article finds evidence supporting all three hypotheses. Banks lower dividends after facing a decline in profits and capital, but counterfactual simulations show that this adjustment could be small. Regulatory restrictions may therefore be warranted in the event of large expected losses or heavy uncertainty.
JEL Code
G21 : Financial Economics→Financial Institutions and Services→Banks, Depository Institutions, Micro Finance Institutions, Mortgages
G35 : Financial Economics→Corporate Finance and Governance→Payout Policy