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Daily Archives: October 1, 2015

BIS Working Papers – how monetary policy affects bank profitability; bond issuance by European banks; role of international reserves

Bank for International Settlements Working papers, October 1, 2015:
•    The influence of monetary policy on bank profitability: “This paper investigates how monetary policy affects bank profitability. We use data for 109 large international banks headquartered in 14 major advanced economies for the period 1995-2012. Overall, we find a positive relationship between the level of short-term rates and the slope of the yield curve (the “interest rate structure”, for short), on the one hand, and bank profitability – return on assets – on the other. This suggests that the positive impact of the interest rate structure on net interest income dominates the negative one on loan loss provisions and on non-interest income. We also find that the effect is stronger when the interest rate level is lower and the slope less steep, ie that non-linearities are present. All this suggests that, over time, unusually low interest rates and an unusually flat term structure erode bank profitability.
•    The determinants of long-term debt issuance by European banks: evidence of two crises: “This paper is one of the first to investigate the determinants of bond issuance by European banks. We use a unique database of around 50,000 bonds issued by 63 banks from 14 European countries, allowing us to differentiate between different types of long-term debt securities. By investigating at the individual bank level, we are able to test explicitly a broad set of hypotheses from both the corporate finance and banking literature on the drivers of bond issuance. We use both country and bank-specific financial characteristics as explanatory variables. With respect to the country determinants, our findings suggest that “market timing” (low interest rates) drove issuance before but not during the crisis, when access to funding became more important than its cost. Moreover, during the crisis years, country-risk characteristics became drivers of bond issuance, while for banks from the euro area periphery central bank liquidity substituted for unsecured long-term debt. We also show that heightened financial market tensions were detrimental to bond issuance, and more strongly so during crisis episodes. Our results yield strongly significant coefficients for the bank-specific variables, with signs as expected. We find evidence of “leverage targeting” by issuing long-term debt during the crisis years. The positive and significant coefficient for the capital ratio supports the “risk absorption” hypothesis, suggesting that larger capital buffers enhanced the risk-bearing capacity of banks and allowed them to issue more debt. Moreover, banks with deposit supply constraints and relatively large loan portfolios issued more bonds, both before and since the crisis years. We also find that higher rated banks were more likely to issue bonds, also during the crisis period. Stronger banks issued especially unsecured debt, while weaker banks resorted more to issuance of covered bonds. Overall, our results suggest that stronger banks – including those from peripheral countries – maintained better access to longer-term funding markets, even during crisis periods. Our results pass several robustness tests. We present an additional aggregated country analysis in a separate appendix.”
•    International reserves and gross capital flow dynamics – “This paper explores the role of international reserves as a stabiliser of international capital flows, in particular during periods of global financial stress. In contrast with previous contributions, aimed at explaining net capital flows, we focus on the behaviour of gross capital flows. We analyse an extensive cross-country quarterly database, comprising 63 countries for the period 1991-2010, using standard panel regressions. We document significant heterogeneity in the response of resident investors to financial stress and relate it to a previously undocumented channel through which reserves act as a buffer during financial stress. A robust result of the analysis is that international reserves facilitate financial disinvestment overseas by residents – a fall in capital outflows. This partially offsets the drop in foreign capital inflows observed in such periods. For the whole sample, we also find that larger stocks of international reserves are linked to higher gross inflows and lower gross outflows. These results, which challenge current approaches to measuring reserve adequacy, call for refining such tools to better account for the role of resident investors”

The Pregnancy Discrimination Act and the Supreme Court: A Legal Analysis of Young v. United Parcel Service

CRS – The Pregnancy Discrimination Act and the Supreme Court: A Legal Analysis of Young v. United Parcel Service. Jody Feder, Legislative Attorney. September 25, 2015. “In 2015, the Supreme Court issued a decision in Young v. United Parcel Service. In the case, a United Parcel Service (UPS) worker named Peggy Young challenged her employer’s… Continue Reading

GAO Reports – Tax Gap, Ford Class Aircraft Carrier, Hospital Value-Based Purchasing, Spent Nuclear Fuel, Tricare Pharmacy Pilot

Fiscal Outlook: Addressing Improper Payments and the Tax Gap Would Improve the Government’s Fiscal Position, GAO-16-92T: Published: Oct 1, 2015. Publicly Released: Oct 1, 2015. Ford Class Aircraft Carrier: Poor Outcomes Are the Predictable Consequences of the Prevalent Acquisition Culture, GAO-16-84T: Published: Oct 1, 2015. Publicly Released: Oct 1, 2015. Hospital Value-Based Purchasing: Initial Results… Continue Reading

School Shootings in America Since Sandy Hook

“Everytown is a movement of Americans working together to end gun violence and build safer communities. Gun violence touches every town in America. For too long, change has been thwarted by the Washington gun lobby and by leaders who refuse to take common-sense steps that will save lives. But something is changing. More than 3… Continue Reading

Texas Passes California as Top State in Volume of Wholesale Trade Sales

“Texas supplanted California between 2007 and 2012 as the state with the largest volume of sales for the wholesale trade sector, according to the U.S. Census Bureau’s most recent economic census. California was the top state in 2007, with $925.3 billion in sales, but its increase was only 4.7 percent to $969.2 billion in 2012.… Continue Reading

Explanation of Open Source Open Networking And SDN

John Fruehe via Forbes/Tech: “Open source is well understood in the software world, as it has helped accelerate IT and bring business advantages by accelerating new solutions and lowering costs—especially around cloud computing. Open networking and software-defined networking (SDN) both promise to bring the benefits of open source to the world of networking, but is… Continue Reading

The Welikia Project

“After a decade of research (1999 – 2009), the Mannahatta Project at the Wildlife Conservation Society un-covered the original ecology of Manhattan, one of New York City’s five boroughs.  The Welikia Project (2010 – 2013) goes beyond Mannahatta to encompass the entire city, discover its original ecology and compare it what we have today.  Welikia means… Continue Reading