Bank Solvency and Funding Cost : New data and new results /

Bank Solvency and Funding Cost : New data and new results /

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Bibliographic Details
Author / Creator:Schmitz, Stefan W., author.
Imprint:Washington, D.C. : International Monetary Fund, 2017.
Description:1 online resource (47)
Language:English
Series:IMF working paper ; WP/17/116
IMF working paper ; WP/17/116.
Subject:
Banks and banking -- Risk management -- Econometric models.
Bank failures -- Prevention -- Econometric models.
Financial risk management -- Econometric models.
Format: E-Resource Book
URL for this record:http://pi.lib.uchicago.edu/1001/cat/bib/11705351
Hidden Bibliographic Details
Other authors / contributors:Sigmund, Michael, author.
Valderrama, Laura, author.
ISBN:1484300904
9781484300909
1484300661
9781484300664
Notes:Includes bibliographical references and index.
Print version record.
Summary:This paper presents new evidence on the empirical relationship between bank solvency and funding costs. Building on a newly constructed dataset drawing on supervisory data for 54 large banks from six advanced countries over 2004-2013, we use a simultaneous equation approach to estimate the contemporaneous interaction between solvency and liquidity. Our results show that liquidity and solvency interactions can be more material than suggested by the existing empirical literature. A 100 bps increase in regulatory capital ratios is associated with a decrease of bank funding costs of about 105 bps. A 100 bps increase in funding costs reduces regulatory capital buffers by 32 bps. We also find evidence of non-linear effects between solvency and funding costs. Understanding the impact of solvency on funding costs is particularly relevant for stress testing. Our analysis suggests that neglecting the dynamic features of the solvency-liquidity nexus in the 2014 EU-wide stress test could have led to a significant underestimation of the impact of stress on bank capital ratios.
Other form:Print Version: Schmitz, Stefan W. Bank Solvency and Funding Cost: New Data and New Results. Washington, D.C. : International Monetary Fund,2017 9781484300664
Standard no.:10.5089/9781484300664.001
Table of Contents:
  • Cover; CONTENTS; I. Introduction; II. Related Literature; III. The Relation Between Solvency Risk and Funding Costs; A. Construction of a New Dataset; B.A Simultaneous Equation Approach; IV. Estimation Results; V. Robustness Checks; A. Introducing a Market-based Measure of Bank Solvency; B. Introducing a Measure of Liquidity Risk; VI. Application to Stress Testing; VII. Summary and Conclusions; References; Figures; 1. Cross-sectional Distribution of Bank Solvency and Funding Costs; 2. Evolution of Bank Solvency and Funding Costs; 3. Decomposition of Impact on CET1-2014 EBA Stress Test.
  • Tables1. Data Coverage; 2. Summary Statistics of the Dependent and Independent Variables; 3. Cross-Correlation Matrix of the Dependent and Independent Variables; 4. Bank Regulatory Capital and Funding Costs; 5. Test Results for Bank Regulatory Capital and Funding Costs; 6. Market-Based Bank Solvency and Funding Costs; 7. Test Results for Market-Based Bank Solvency and Funding Costs; 8. Bank Regulatory Capital and Funding Costs (Controlling for Liquidity Risk); 9. Test Results for Bank Regulatory Capital and Funding Costs (Controlling for Liquidity Risk).
  • 10. Market-Based Bank Solvency and Funding Costs (Controlling for Liquidity Risk)11. Test Results for Market-Based Bank Solvency and Funding Costs (Controlling for Liquidity Risk); 12. Bank Regulatory Capital and Funding Costs (OLS Estimation); 13. Market-Based Bank Solvency and Funding Costs (OLS Estimation); 14. Impact of Bank Solvency and Funding Cost Interaction-2014 EBA Stress Test.

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